Is managed futures the Tyrion Lannister of the investing world?

Is managed futures the Tyrion Lannister of the investing world?
Image Source: GameOfThrones / HBO / YouTube video (screenshot)

Managed futures and the character Tyrion Lannister have a lot in common

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The premiere of Season 7 of HBO’s hit ‘Game of Thrones’ has fans of the series and its books clamoring to know what will happen as Cersei Lannister assumes the Iron Throne with nothing left to lose, Jon Snow reassembles his forces after a bloody victory, and Daenerys and her three dragons make their return to Westeros.

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One of the most pervasive points of view in the story is Tyrion Lannister, who most recently became Daenerys’ Hand of the Queen.

Despite his sharp wit and diplomatic chops, Tyrion, a dwarf, was often shunned by dignitaries and even his own family as a deformed monster, considered nothing more than besotted jester. That was before he played a role in ushering in a new regime, headed by Daenerys. Now, as she seeks to reclaim the Iron Throne for the Targaryens, Tyrion has ascended to become an irreplaceable component to the success of her campaign to conquer the Westerosi continent.

So, what is irreplaceable in your portfolio?

Learn from history or be doomed to repeat it


We all know past performance doesn’t ensure future results. The sting of 2002 and 2008 can still be felt by some investors who suffered through these times without well-diversified portfolios.

Our recent research shows that 1 in 4 advisors find diversification more difficult to obtain in the current environment. Many disagree about which asset class can actually provide true diversification, with some factions trumpeting real estate and other real assets, while others dig in on fusty corporate and government bonds.

But these answers don’t take into account what a diversifier should do: provide returns in bear markets and lower risk. And there are a handful of investments that do that consistently, like gold, MLPs and managed futures.

Timing the market means a lot of emotional decision-making


Does that fear sound like how your clients feel as we continue in one of the longest running bull markets in history? It’s not surprising.

Investors tend to watch their portfolios with hawk eyes and make emotional decisions when the gains they might make don’t match up with what’s on CNBC or Bloomberg.

Even the most well-meaning investors can pore over their portfolios like a Maester holed up in a library, seeking to uncover some hidden mystery that will unlock untold wealth. And, like those denizens of the venerable Citadel, they tend to treat new ideas and new people with intense suspicion. When gains on TV don’t align with gains on their statement, they make their displeasure known.

Add in the tendency to buy high and sell low when clients get emotional and no wonder advisors believe that a lack of client understanding is the No. 1 barrier to adding a new investment into a client’s portfolio – which could be the one move that might protect them from that dark, terror-filled night.

Is managed futures the Tyrion of the investing world?

tyrion lannister

Commonly misunderstood. Often discounted. Seemingly harder to understand. These are all characteristics of Tyrion but also of true diversifiers like managed futures.

Because the alternatives space is so varied, it is harder to understand than the simpler risk profiles of a stock or bond investment. No wonder despite managed futures outperforming in 13 of the 15 worst months of S&P 500 performance in the last 15 years, people believe the strategy doesn’t make much money.

This is because diversification is a mental game: it’s about bearing through the ups and downs to get the long-term returns managed futures has provided since the turn of the century.

There will be times when it seems like an allocation to managed futures might be seen as a drag on performance. But when it moves differently than allocations to stocks and bonds, it’s actually doing exactly what it’s supposed to be doing – accessing different types of risk so when the other parts of a portfolio underperform it can help continue to get investors to their wealth goals.

That’s why this Tyrion quote describes him – and managed futures – perfectly: “Never forget what you are … Make it your strength. Then it can never be your weakness. Armor yourself in it, and it will never be used to hurt you.”

Article by Longboard Funds


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