How do hedge funds find trading patterns

Managed futures an alternative asset class. apano hedge funds introduction to the topic of managed futures

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1 Managed Futures an alternative asset class apano hedge funds Introduction to the topic of Managed Futures Status: The September Network

2 Futures - the forerunners have been around forever Falling prices Rising prices much older than stocks and bonds: mutual receivables transactions Price fixing for a commodity with a delivery date in the future Gaining profit (speculation) or avoiding loss (hedging) 1730: Osaka - Dojima Rice Market 1848: 82 Grain dealers found the Chicago Board of Trade (CBOT), content of trade: flour, grass seeds, hay, corn 1898: Chicago Butter and Egg Board; Due to the increased volume of goods 1919 name changed to Chicago Mercantile Exchange (CME) The network 2 2

3 Futures - Definition of standardized futures contracts Buyers and sellers undertake to purchase or deliver: o a precisely defined i product o at a precisely defined time o at a precisely defined price The network 3 3

4 Futures - Standardization enables professional trading. The managers are called CTA. They developed an investment style: Managed Futures The Network 4 CTA = Commodity Trading Advisor, as it originally came from the commodities sector 4

5 Futures - further development 1949: Launch of the first managed futures fund 1972: Introduction of futures contracts on currencies (at the CME) 1974: Foundation of the Commodities Futures Trading Commission 1975: Introduction of futures contracts on interest first technical trading models, e.g. Shoulder-head-shoulder The network 5 5

6 Futures - IT revolution of the 80s and 90s Introduction of computer-aided chart analysis: o Programs for recognizing long and short signals, o Facilitates the calculation of technical indicators (moving average, relative strength (RSI), momentum,) o New strategies t (Autocorrelation analysis, ti l volatility breakout, conditional version) Studies spur growth in the managed futures industry Derivatives exchanges: LIFFE (GB / 1982), MATIF (F / 1986), DTB (D / 1990), since 1998 EUREX (DTB + SOFFEX ), a joint venture between Deutsche Börse AG and SIX Swiss Exchange The Network 6 6

7 Managed futures - standardization and the IT revolution enables professional computer trading The network 7 7

8 Managed Futures Computer programs generate buy and sell signals on the long or short side. Trading universe: From A for stocks to Z for sugar, listed futures contracts are usually positioned in the market direction of trend followers. The network 8 8

9 Managed Futures Century CTAs attract the attention of scientists: Research into the contribution to portfolio optimization Today, collaboration between research and academic research Development of new strategies (e.g. fundamental factors models) 2007: over 15 billion futures contracts, leading: stock indices and interest rates 2008: CME Group, largest futures exchange in the world, created from the merger of CME, CBOT and NYMEX The network 9 9

10 Managed Futures Century More than 200 markets - each in 2 directions - are available Agricultural products Metal values ​​Interest shares Currencies Energy values ​​Bonds The network 10 This is a schematic representation of the trading markets. The bandwidth of the futures markets can change at any time. 10

11 Development of the managed futures industry USD bn. Assets under management in managed futures The network 11 1 As of March 31, Source: BarclayHedge. Latest data available. 11

12 Futures - economically important Trading partners today, e.g. primary industry and processing industry Trade content today: financial futures contracts and commodity futures contracts The network 12 12

13 Special advantages of futures: Trading on rising and falling prices possible. More liquid, faster, cheaper than cash instruments The network 13 13

14 Futures - calculation example DAX futures index level is 4900 nominal value 1 DAX future = 25 x index level =, - Euro deposit (margin) for buying / selling 1 DAX future = approx. 10% =, - Euro assumption: DAX changed changes by 100 points = +/- 2.04% nominal value of the DAX future changes by 25 x +/- 100 = + /, - Euro profit and loss statement of the futures holder: + /, -:, - = +/- 20.4 % Trading requires discipline + risk control The network 14 14

15 Futures - strictly monitored Broker A Long Exchange Short Broker B Effective long position with clearing house Initial margin Variation margin Clearing house Effective short position with clearing house Initial margin Variation margin 1. Regulated by government institutions * 2. Clearing houses guarantee transactions 3. Daily P&L - Settlement of counterparties The network 15 * in the USA: Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) 15

16 Performance Managed Futures 1 () Strong World stocks 3500 world bonds Managed world world bonds Futures 1 stocks Total return 290.1% 91.3% 241.0% Ø annual return 7.9% 3.7% 7.1% Ø volatility pa 10.5% 14.2% 3.1% 1000 return of the last 12 months 0.9% -20.3% 7.6% return of the 29.4% -0.8% 29.8% last 5 years The Network 16 1 Managed Futures: Stark 300 Trader index. Please note that Stark & ​​Co., Inc. index data for the past four months may still change. World stocks: MSCI World Total Return Index (hedged in USD; price return). World bonds: Citigroup WGB Index (hedged in USD). Source: Man database. 16

17 Managed futures can protect portfolios in times of crisis Performance during the 10 worst months for world stocks () * 15% Strong 300 Trader Index world stocks 10% 5% 0% -5% monthly return -10% -15% Oct 08 Aug 98 Sep 02 Sep 08 Feb 09 Sep 01 Jul 02 Jan 08 Jun 08 Jun 02 Network 17 * The period shown is based on the 12-month moving average prescribed by MiFID. World stocks: MSCI World Index (hedged in USD; price return). A guarantee for a specific trading performance cannot be given. Please note that Stark & ​​Co., Inc. index data for the past four months may still change. Source: Man Database and and Stark & ​​Co., Inc. 17

18 Managed futures can use parts of a trend for themselves Here: Development of the DAX from the build-up of net long positions Build-up of net short positions 200-day line 90-day line Only a schematic representation for illustrative purposes The network 18 Source: Cortal Consors 18

19 Managed futures react relatively late in V-formations Here: Development of the DAX from the build-up of net long positions Reduction of short positions 200-day line 90-day line Only a schematic representation for illustrative purposes The network 19 Source: Cortal Consors 19

20 Analysis of the correlation () Correlation (rolling over 24 months) Rolling correlation over 24 months of managed futures and world stocks World stocks Managed futures correlation (rolling over 24 months)% 30% 20% 10% 0% -10% -20% - 30% -40% rolling over 24 months) Annualized return (in%: ro tion (rolling over 24 months) Correlate Rolling correlation over 24 months of managed futures and world bonds World bonds Managed futures correlation (rolling over 24 months)% 30% 20% 10% 0% -10% -20% -30% -40% rolling over 24 months Annualized return (in%: MF can take advantage of upward and downward trends in traditional markets over certain distances. The correlation varies over the course of the In the past it was - mostly positive in rising markets - mostly negative in falling markets The Network 20 Source: Bloomberg and Stark & ​​Co., Inc. World stocks: MSCI World Index (hedged in USD; exchange rate yield) : Citigroup World Government Bond Index (hedged in USD; Total return). Managed Futures: Stark 300 Trader Index. Past performance or model performance is not necessarily a guide to future results. A guarantee for a specific trading performance cannot be given. Please note that Stark & ​​Co., Inc. index data for the past four months may still change. 20th