Hedge fund strategy - Managed Futures - AIM 62.3

[Hardy Noman]

Hi David / Shakti (@David Harper, CFA, FRM, CIPM / ShaktiRathore)

In the explanation of managed futures as a hedge fund strategy,
Schweser states that many managed futures funds are market timing funds, which switch between stocks and treasury, it also compares payoff function of a Managed Futures (when both long and short positions are considered) to a lookback straddle........which consists of a lookback call options that gives the owner the right to purchase the underlying instrument at the lower price during the call options life, while lookback put gives the owner the right to sell the underlying instrument at the highest price during the put options life

Can you explain :
1) what is meant by "Market timing funds" , i think managed futures are fund that just invest in index futures of different asset classes...isn't it?
2) how is the payoff similar to lookback straddle?
3) Also in the notes schweser states..."with managed futures, there is no long or short bias"
what does this mean??
4) Difference between "Managed Futures" & "Global Macro" ???.... they seem to follow similar investing techniques.

Thank you!!

 

[ShaktiRathore]

Hi,
1) The market timing funds as said by you uses the strategy to switch between the treasury and the stocks. I mean whenever these positions are taken using futures. If there is a portfolio invested in treasury and portfolio manager thinks that market will go up(optimistic scenario) in near future then take long positions in the futures of the stock/index thereby growing the beta of the portfolio thus creating a synthetic equity position. When the manager thinks that markets will go down in the near future(pessimistic scenario) he will convert these equity position back to treasury through selling futures thereby lowering the beta to 0 so as to make overall position back to invested in treasury.
2)Payoff is determined by the lowest and highest attained price during the option life in a lookback option. In managed futures whenever the stock will attain a lowest value(S0) the manager shall long futures on the stock and sell it after some period so that stock now rises to St so overall pay is St-S0. In lookback option too the lowest price which is used to determine final payoff so that if lowest price too is S0 in the period and after some perios the stock rises to St the overall pay is St-S0. Manager will buy futures when market is down and sell it when its up. So payoff are similar as per strategy of manager nevertheless the strategies can be said to be similar as per i think.
3) no short or long bias means that manager will not take short and long positions simultaneously but will take only long or only short positions and not a combination of them. So if i have to convert treasury portfolio to stock i will take only long futures position and when i have to convert the equity portfolio to treasury i will take short futures position only.
4) Managed futures are what i stated above and global macro is a hedge fund strategy to bet on global markets that is on the countries macro situation that is interest rate will go up or that currency will go down, economy shall rise/ fiscal deficit etc. And make bets based on our own forecasts of these macro factors. e.g. George Soros made this global Macro strategy when he bet that currency of pound will go some thrashing and that was what happened and he made lot of money.
thanks