/biz/ - Business & Finance

Lets ignore the trend following rules and just assume that they're given. I'm assuming that we have a managed futures type portfolio where we invest in equities, bonds, currencies, commodities...
Here's how I would do it if I managed billions of dollars:
>Permanent long and short allocations to certain asset classes where security selection (some factor strategies) is possible, i.e. equities, bonds...
>Get the rest of the exposure using futures.
Lets say that we're net 50% long equities from the security selection stage and that we should be 100% SHORT equities according to the trend... we should then go 100% short using futures. The security selection exposure should be determined by the attractiveness of the opportunity set, liquidity, operational risks (short squeezes)... We want to be able to change our net exposure quickly.
>Just go long/short the "normal" (managed futures) way if we don't have to deal with security selection...

So, we use some factor strategies for security selection and trend following and are able to capture the factor premiums in addition to the trend following returns. You could maybe also buy some out of the money put options on the market to hedge against tail risk, but that might be a bit off-topic.

What do you think? What changes would you make? Any other thoughts?