Brandywine Asset Management commentary for the month ended July 31, 22017; titled, “Managed Futures In Your Portfolio”
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In a landmark 1983 paper, Harvard professor Dr. John Lintner wrote: "the improvements from holding an efficiently-selected portfolio of managed accounts or funds are so Iarge-and the correlation between returns on the futures portfolios and those on the stock and bond portfolio are so surprisingly Iow (sometimes even negative)-that the return/risk tradeoffs provided by augmented portfolios...clearly dominate the tradeoffs available from portfolio of stocks alone or from portfolios of stocks and bonds."
Continued from part one... Q1 hedge fund letters, conference, scoops etc Abrams and his team want to understand the fundamental economics of every opportunity because, "It is easy to tell what has been, and it is easy to tell what is today, but the biggest deal for the investor is to . . . SORRY! Read More
This is an academic way of saying that investing part of your portfolio in managed futures can both increase returns and decrease risk. The Lintner paper was more recently updated with similar results by the CME in 2014. You can click here to view the updated paper in its entirety: Update of the Lintner paper.
Following the 2008 financial crisis, many financial advisors took this advice to heart and added managed futures to their clients’ portfolios. As people’s money decisions are reactionary, rather than anticipatory, it was of course too late to protect their portfolios from the devastation of the 2007-2009 bear market. But the argument for holding managed futures over the longer-term was still valid. However, over the past eight years stocks have rallied sharply while managed futures have significantly underperformed their his-torical expectations. As a result, many people have concluded that they’d be better off with just stocks and bonds in their portfolios. Despite the longer-term benefits, the idea of adding managed futures to their portfolios has lost its luster.
But all investment programs that utilize futures, such as Brandywine's, are not equal. As we pointed out in last month's report, adding Brandywine to an equity portfolio would have both increased returns and decreased risk - even during the powerful bull market of the past eight years. This is due to Brandywine’s complete non-correlation to stocks. And if you already hold a managed futures portfolio, including Brandywine in that portfolio will both increase returns and decrease risk of that portfolio as well. This is due to Brandywine’s complete non-correlation to managed futures indexes, which is displayed in the chart above. This non-correlation is the result of Brandywine’s systematic use of fundamental trading strategies that are different from the strategies employed by managed futures traders.
So the fact is that investing with Brandywine would have improved your performance even during the strong stock market rally of the past eight years, while also profiting during equity bear markets. And Brandywine provides the same benefit to managed futures portfolios.
As always, we encourage you to contact us by calling or emailing us at our address listed in this report’s header.
Additional Reasons to Invest Now With Brandywine (Performance of the Brandywine CPU)(2)
(Non) Correlation (highlighted in table at right) of Brandywine’s Investment Programs to Other Investment Indexes3
It is this non-correlation - combined with Brandywine’s repeatable investment process and broad strategy and market diversification - that makes Brandywine such a positive addition to most investment portfolios.
Monthly Performances of Brandywine’s Investment Programs1,4
See the full PDF below.