15 Aug Learning From SSGA's "Trends and Benefits"

Managed Futures and Global Macro strategies provide effective hedges against Equity declines.

In this article, Absolute Momentum will be used interchangeably with trend following or time series momentum. Relative Momentum will be used interchangeably with cross-sectional momentum or relative strength.

The paper starts by showing that Managed Futures and Global Macro strategies tend to perform better when absolute annual price changes are greater.

In “Figure 3” of the paper (reproduced below), we will see the low correlation of Managed Futures and Global Macro strategies to Equity Markets.

Source: State Street Global Advisors

Furthermore, “Figure 4” of the paper (reproduced below) shows that Managed Futures delivered flat to positive performance in the 15 worst months for the S&P 500 index.

Source: State Street Global Advisors

Finally the ability of Managed Futures to provide effective hedge against Equity declines is quantified by a low kurtosis number, meaning that volatility remains relatively stable in extreme market environments.

Research Paper: Trends & Benefits: Currencies, Commodities & The Diversification Potential of Hedge Funds

Authors: William Marr, Alexander Rudin, Ph.D.

Company: State Street Global Advisors