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High price variability in the markets has continued to hurt Managed Futures programs performance.

The sharp spikes in volatility and the corresponding reversal of short term trends had a negative impact on performance.

There is the misconception that Managed Futures program are a long volatility strategy. Unfortunately, this may be a misrepresentation of the actual return and sensibility profile, especially for longer-term trend-followers if it is not defined with precision.

Volatility over time is a necessary, but not a sufficient, condition for higher potential returns. Sustained higher volatility implies that the potential range of dispersion of prices will increase with the square root rule. The volatility over an annual period is just the standard deviation over a short horizon multiplied by the square root of the longer time period. However, a spike in volatility , if it is shorter that the horizon of the trading model employed, may increase the short-term range in prices but not allow for trends to be established. We sometimes refer to this condition as choppy markets.

Short term unanticipated increases or spikes in volatility are potentially bad for performance. In option parlance, we have negative vega to these volatility spikes. Amplitude or the range in prices over a period of time is more important to the trend-follower.

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