RT Journal Article SR Electronic T1 Hedge Funds versus Managed Futures as Asset Classes JF The Journal of Derivatives FD Institutional Investor Journals SP 45 OP 64 DO 10.3905/jod.1999.319128 VO 6 IS 4 A1 Franklin R. Edwards A1 Jimmy Liew YR 1999 UL https://pm-research.com/content/6/4/45.abstract AB Portfolio theory focuses on constructing optimal portfolios of assets to maximize expected return and minimize risk. In informationally efficient markets, the prescription is generally to buy and hold a broadly diversified portfolio. In theory, fairly priced derivative instruments do not add anything of importance to the mix, since their payoffs can be replicated using the underlying assets. And there is no role for speculation, against the efficient prices in the market. Among real-world investors, however, there is considerable interest in funds that specialize in trading futures, as well as in hedge funds that may engage in all sorts of speculation. Historically, some funds based on these non-standard assets appear to have done extremely well, but others have not. This article takes a thorough and comprehensive look at the historical performance of managed futures and hedge funds alone and as components of a broadly diversified asset portfolio. The overall result is that they have historically tended to earn positive returns with low correlation to other asset classes, so that adding either hedge funds or managed futures to a diversified portfolio of ordinary assets would have increased its Sharpe ratio.