Good piece by Mack Frankfurter of Cervino Capital over the weekend, an Attain recommended CTA, covering whether Managed Futures is an asset class or not… with an especially good paragraph from a 1993 paper by Lawrence Harris which described the different players in the trading world:
“…value-motivated traders, inside informed traders, headline traders, event study traders, dealers, market-makers, specialists, scalpers, day traders, upstairs position traders, block facilitators, market data monitors, electronic proprietary traders, quote-matchers, front-runners, technical traders, chartists, momentum traders, contrarians, pure arbitrageurs, statistical arbitrageurs, pairs traders, risk arbitrageurs, bluffers, ‘pure’ traders, noise traders, hedgers, uninformed investors, indexers, pseudo-informed traders, fledglings and gambler…”
Mr. Frankfurter contends that managed futures is not an asset class, but doesn’t really tell us what it is if it isn’t an asset class. It surely isn’t stocks, or bonds, real estate, or commodities (long only). And recent research by Welton showed that it sure marches to its own beat. So if it isn’t an asset class… what is it?
We can’t find a good answer for what managed futures is if it is not an asset class. Managed futures has its own set of laws and regulations, has shown repeatedly to be non-correlated with all the traditional asset classes listed above (as well as with hedge funds in 2008), and has its own set of return drivers (the movement of other asset classes up and down).
We’re likely to do a full newsletter on this later this year, but in the meantime, we’ll leave our friend Mr. Frankfurter with the question – if managed futures is not an asset class, then which asset class does it belong to?
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