### Benchmarking Trend-following Managed Futures

**May 17, 2016** - Commodity Futures, Momentum Investing

Is there an objective way to benchmark the performance of trend-following Managed Futures hedge funds? In their March 2016 paper entitled “Adaptive Time Series Momentum – Benchmark for Trend-Following Funds”, Peter Erdos and Gert Elaut test a futures timing system that increases (decreases) allocations when trends are emerging (fading) per 251 equally weighted, volatility-scaled, daily rebalanced time series momentum (TSMOM) strategies. Strategy lookback intervals range from 10 to 260 trading days. Volatility scaling involves dividing momentum returns by an exponentially weighted daily moving average estimator of volatility over a 60-day rolling window. They account for trading frictions (bid-ask spread plus broker/market fees by asset class, estimated separately for old and new subperiods), exchange rates, one-day signal-to-trade execution delay and estimated management/performance fees. They apply the TSMOM system as a mechanical benchmark for trend-following Managed Futures hedge funds. They examine also a momentum “speed factor” that buys longer-term and sells shorter-term TSMOM strategies. Using daily prices for 98 futures contract series and monthly net-of-fee returns for 379 live and dead trend-following Managed Futures hedge funds during January 1994 through September 2015, *they find that:* Keep Reading