The Role of Managed Futures Strategies Within Investment Portfolios

Transcription

1 The Role of Managed Futures Strategies Within Investment Portfolios Presented By Mark Rosenberg Chairman and Chief Investment Officer YALE UNIVERSITY November 4, 2005 SSARIS Advisors, LLC Financial Centre 695 East Main Street Suite 102 Stamford, CT Client Serv i c e :(203) F a x :(203) I n t e rn e t: w w w.ssaris.com e m a i l:info@ssaris.com

2 MARK ROSENBERG Mark Rosenberg is Chairman of the Board and Chief Investment Officer at SSARIS Advisors, LLC. SSARIS and its predecessor company, RXR Capital Management, have combined to create absolute return investments that provide consistent performance with return characteristics that complement traditional portfolio assets since Mr. Rosenberg has over 30 years experience in the investment management industry and is widely recognized as one of the founders of the managed futures industry. His first job was on the floor of the New York Stock Exchange (NYSE), and subsequently the New York Mercantile Exchange (NYMEX), where he managed proprietary capital using a variety of quantitative techniques for Weis, Voisen & Cannon, a private investment boutique. In 1974, he joined Merrill Lynch & Co. and organized a group that was responsible for managing hedging and alternative investment strategies for Merrill s institutional clients. This entity became the Financial Futures and Options Group. MARK ROSENBERG In 1983, Mr. Rosenberg left Merrill and formed RXR, where he became increasingly focused on creating efficient portfolios using quantitative investment strategies. RXR was a Registered Investment Advisor and Commodity Trading Advisor and managed absolute return investments including long/short equity, relative value fixed income and global macro strategies. Mr. Rosenberg is responsible for all investment management and investment research initiatives at SSARIS. He is a fourth term Director of the Board of the Futures Industry Association (FIA), and on the board of the Managed Futures Association (MFA), the leading hedge fund association. He is also an arbiter for the National Futures Association (NFA) and is a former member of the Financial Advisory Boards of both the Chicago Mercantile Exchange (CME) and the Commodity Exchange, Inc. (COMEX). Mr. Rosenberg is also a former Director of the Foundation of Finance and Banking Research. Mr. Rosenberg is involved in several community activities. He has donated time to Domus House, a refuge for abandoned children, and various entrepreneurial projects targeting low-income families.

3 Fundamental Question Is it Prudent to Fund Fixed Liabilities with Equity Investments? 1

4 Fundamental Questions Is it Prudent to Fund Fixed Liabilities with Equity Investments? What if Equities Don t Provide Investors a Risk Premium over the Next Decade? 2

5 Absolute Return Investing in Any Asset Class with Absolute Returns and Low Correlation to Other Assets Improves the Risk / Reward Characteristics of the Entire Portfolio 3

6 Managed Futures One of the Oldest Hedge Fund Strategies Includes Commodities, Interest Rates, Equity Indexes and Foreign Exchange Markets Relatively High Volatility Non Correlated / Negatively Correlated Regulated by the CFTC 4

7 Philosophy Markets are Efficient Most of the Time, But from Time to Time They Become Irrational 5

8 Example Convergent Index H I STO G R A M Sub Index Allocation 33% Equity Market Neutral 33% Relative Value 33% Event Driven Abnormal Kurtosis Tight Return Distribution (Less Volatile) Negative Skewness (i.e. Negative Outlier) S o u rce: CSFB Tremont Index Risk Table 01/95 06/04 Largest Length Recovery Peak Valley Drawdowns (8.25) % 5 6 May-98 Oct-98 (1.39) % 2 4 May-02 Jul-02 (0.54) % 1 1 Jan-02 Feb-02 (0.42) % 1 1 Aug-01 Sep-01 (0.16) % 1 1 Oct-00 Nov-00 Compound ROR % Standard Deviation 3.44 % Gain Deviation 2.11 % Loss Deviation 5.29 % Efficiency 3.19 Skewness (2.73) Kurtosis

9 Managed Futures Portfolio / Divergent Wide Return Distribution Positive Skewness H I STO G R A M Risk Table 01/95 2Q03 Drawdown Length Recovery Peak Valley Compound ROR % Standard Deviation % Gain Deviation % Loss Deviation 8.10 % Sharpe (5.00%) 0.67 Skewness 0.14 Kurtosis 0.45 (13.06) % 4 22 Sep-98 Jan-99 (9.18) % 1 8 Jan-96 Feb-96 (8.10) % 6 3 Oct-01 Apr-02 (7.73) % 2 - Oct-02 Nov-02 (6.00) % 5 2 Jan-98 Jun-98 (5.77) % 3 2 Mar-01 Jun-01 (4.63) % 1 4 Jul-97 Aug-97 7

10 Convergent with Managed Futures 30 H I STO G R A M Sub Index Allocation -75% Convergent -25% Managed Futures 15 Normal Return Distribution 10 Skewness Approaching Zero 5 Drawdowns Reduced % % % % % 0. 9 % 1. 6 % 2. 2 % 2. 9 % 3. 6 % 4. 3 % M o re S o u rce: SSARIS Advisors, LLC Largest Length Recovery Peak Valley Drawdowns (4.61) % 7 5 Mar-98 Oct-98 (2.31) % 1 0 Feb-04 Jun-04 (1.72) % 1 2 Sep-02 Oct-02 (1.37) % 1 2 Jan-96 Feb-96 (1.33) % 1 2 Oct-01 Nov-01 (1.26) % 1 1 Sep-99 Oct-99 (1.08) % 1 2 Jan-02 Feb-02 (1.06) % 4 1 Jul-97 Aug-97 Risk Table 01/95 06/04 Compound ROR 9.69 % Standard Deviation 4.46 % Gain Deviation 3.16 % Loss Deviation 2.63 % Efficiency 2.10 Skewness (0.13) Kurtosis

11 Performance Comparisons PE R F O R M A N C E I N A DE C L I N I N G ST O C K MA R K E T 1 PERFORMANCE IN A DECLINING BOND MARKET 1 Period Managed Futures S&P 500 May % (6.7)% Jul 86 (5.1)% (5.6)% Sep 86 (14.4)% (8.3)% Oct 87 (2.0)% (21.5)% Nov % (8.2)% Jan % (6.7)% Aug 90 (1.9)% (9.0)% Aug 97 (4.6)% (5.6)% Aug % (14.5)% Jan % (5.0)% Sep 00 (4.2)% (5.3)% Nov % (7.9)% Feb 01 (2.5)% (9.1)% Mar % (6.3)% Aug % (6.3)% Sep % (8.1)% Apr 02 (1.7)% (6.1)% Jun % (7.1)% Jul % (7.8)% Sep % (10.9)% Dec % (5.9)% Total 59.9% (170.7)% 1 Compares the S&P 500 Index in months where the Index declined by more than 5% since Period Managed Futures LB LTG May % (3.5)% Jul 83 (15.8)% (4.9)% May % (5.4)% Feb % (4.7)% May % (5.7)% Sep 86 (14.4)% (3.7)% Apr % (4.9)% Sep 87 (1.1)% (4.4)% Mar 88 (6.6)% (3.1)% Jan % (3.6)% Aug 90 (1.9)% (4.3)% Jan 92 (5.7)% (3.1)% Feb 94 (2.6)% (4.1)% Mar % (4.4)% Sep % (3.2)% Feb 96 (9.2)% (4.9)% Feb % (4.8)% Nov 01 (7.3)% (4.8)% Mar % (4.0)% Jul 03 (1.4)% (9.2)% Apr 04 (6.7)% (5.6)% Total 56.5% (96.3)% 1 Compares the Lehman Brothers Long Term Government Index in months we Index declined by 3% or more since Managed Futures is represented by a CTA Proxy 9

12 Investment Philosophy Inefficiencies Exist Price Overshooting I m p e rfect Information, Speculative Bubbles & Human Emotions (Fear, Greed, etc) Hedgers Transferring Risk Diversification Using Divergent Investment Te c h n i q u e s Convergent Strategies Focus on Overvalued / Undervalued Situations that Tend to do Well During Periods of Stable or Declining Volatility Divergent Strategies Capitalize on Prices that Serial Correlate During Periods of Rising Volatility 10

13 SSARIS Advisors LLC Majority Owned by State Street Global Alliance (SSgA and ABP) Senior Partners of SSARIS Have a Direct Ownership Interest in the Firm Over $1 trillion under management Over $9 trillion under custody (State Street Bank and Trust) A B P Largest European pension fund C150 billion in pension assets Fund of hedge funds advisor for SSgA $1 billion in pension, endowment and other institutional assets Clients Include Public and Corporate Pension Funds, Taft-Hartley and other Financial Institutions 11

14 Investment Process Three Directional Models to Enter and Exit Trades Using Long, Neutral and Short Signals - Intermediate Trend Following - Long-Term Trend Following - Intermediate Momentum Tra i l i n g Stops Used on All Positions Confirming Strength of Buy/Sell Signal to Deal with Intra-day Volatility 160 Markets Evaluated Annually for Inclusion in Portfolio EVALUATION PROCESS MARKETS QUALIFYING 1) CFTC Regulations and Market Liquidity Markets 2) Consistency of Performance Using Three Model Approach Markets 3) Correlation Analysis to Reduce Concentration Risk Markets Positions are Equal Weighted Quarterly by Relative Value at Risk (VAR), and Adjusted Daily When Pre-determined Volatility Bands are Breached Real-time Monitoring at Fund, Sector and Position Level 12

15 Risk Management Snapshot of Summary Risk Report: [1] Mathematical summation of all individual open positions' absolute value of daily 5% VaR which calculated externally. Return and Risk is Measured and Evaluated Daily Fund Level Sector Level Market Level 13

16 Diversified Trading Program Summary Competitive Advantages Length of Performance History Evaluation of Markets Profit Potential and Consistency Before Including in Portfolio Confirming Buy / Sell Signal to Reduce Intra-day Volatility Using VAR to Equal Weight Positions in Portfolio to Avoid Concentration Risk Active Research and Risk Management Process Shared Resources of State Street Global Advisors Absolute Return Investment Strategies

17 Thank You 15