The Landmark Lintner Study: A Historical Perspective

In 1983, Prof. John V. Lintner of Harvard University presented a paper, "The Potential Role of Managed Commodity-Financial Futures Accounts (and/or Funds) in Portfolios of Stocks and Bonds," to the Financial Analysts Federation. The paper stated that "the improvements from holding an efficiently-selected portfolio of managed accounts or funds are so large--and the correlation between returns on the futures portfolios and those on the stock and bond portfolio are so surprisingly low (sometimes even negative)--that the return/risk tradeoffs provided by augmented portfolios...clearly dominate the tradeoffs available from portfolio of stocks alone or from portfolios of stocks and bonds."

"Portfolios...including judicious investments...in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone."

Dr. John K. Lintner, Harvard Economist

Managed Account Reports (MAR) Follow Up on Dr. Lintner's Study

MAR conducted analysis for the period January 1980 through December 1992. First, they evaluated the portfolios to determine if including managed futures increased the risk-adjusted rate of return. Second, they constructed assorted minimum-variance frontiers using combinations of the different asset classes.

MAR combined a portfolio of managed futures with:

Conclusions of MAR Study

Managed Futures in a Portfolio of Stocks

"An efficiently-allocated portfolio consisting of managed futures and stocks should provide a better reward/risk ratio than an investment in stocks alone." Ideal combination for risk reduction is 62% stocks / 38% managed futures.

Managed Futures in a Portfolio of Government Bonds

"An efficiently-allocated portfolio consisting of managed futures and bonds should provide a better reward/risk ratio than an investment in bonds alone." Ideal combination for risk reduction is 91% bonds / 9% managed futures.

Managed Futures in a Portfolio of Stocks and Bonds

"By allocating about 14% of the assets to managed futures, we get a 14.6% reduction in standard deviation. Further, we see that for all available levels of returns in an efficiently- allocated stock/bond portfolio, the inclusion of managed futures lowers the standard deviation -- offering better return/risk characteristics."

Managed Futures in a Portfolio of Stocks, Bonds, and Treasury Bills."

"An efficient allocation of assets between stocks, bonds, Treasury Bills, and managed futures (7% to managed futures) reduces the risk for a given level of return over an efficiently-allocated portfolio of stocks, bonds, and treasury bills."

Differences Between the Lintner and MAR Studies

A key difference between Lintner's study and MAR's is that Lintner selected 15 advisors and allocated assets efficiently between them. MAR, however, used a qualified universe of 290 advisors. We believe the latter is more representative of the performance of trading advisors as a whole and cannot be criticized as having selection bias. Another important difference is that Lintner looked at the enhanced return per unit of risk. In the MAR study more emphasis was placed on risk-reduction.

Finally, Lintner examined the period July, 1979 through December, 1982. MAR's analysis covered the period January, 1980 to December 1992, a much longer and more recent time period.

2001 Business Week Update

A March 19, 2001 article in Business Week, "Futures Now", brought the achievements of futures funds up to date:

"Overall, the Managed Account Reports (MAR) index, which tracks these funds, rose 6.1%, a far cry from the bloodied stock market indices. ..."

"While futures funds can have severe drawdowns, historically, when the stock markets have been pummeled, the commodity funds have done well. For example, during the Russian debt crisis in August, 1998, U.S. stocks dropped 15%, while the average futures fund was up 6%. There were similar movements during the stock market crash of 1987, and the Persian Gulf war." Overall, the average yearly returns from futures funds fall in the mid-teens. But that doesn't mean there's a regular 1% to 1.5% return every month. Those results come in quick bursts of performance."

"Commodity futures fund investors were greatly rewarded during last year's [2000] fourth quarter. While the stock market struggled, the MAR index was up 11.7%. ...[futures funds] have made money 17 of the past 20 years. Indeed, as long as you can stand the gyrations, putting a small part of your portfolio in these funds can't hurt. And during sudden downward spirals in the stock market, such as we had last year, they could actually prove to be a saving grace."