Misleading headline; the article says nothing about historical returns being a poor metric of fund performance. The scenario presented is a standard example of

Misleading headline; the article says nothing about historical returns being a poor metric of fund performance. The scenario presented is a standard example of high-risk investment which can easily (and fraudulently) be presented as ingenious investing. The problem here isn't historical returns being used as a metric for fund performance, it's transparency. Strategies like these will not yield a high return over a period of, for instance, 20 years. The only reason this works (for now) is that these funds only live for about 5 years, which is not enough to provide a good statistical sample for the events being observed. If investors were actually presented with the raw statistical data (10% chance of no returns, 90% chance of 10% returns) both manager commission and the clientelle of these funds would look completely different. Pricing deficiencies are probably present to a high degree in derivatives markets like these. But these markets are too young for investors to have any confidence in the actual probabilities of these events and how to relate to them. If one of these funds survives over a period of a decade or more and its practices look solid, that would be a sign that the managers know what they are doing. Regardless, the nature of derivatives markets is more akin to gambling and less related to the creation of wealth. As I have said before, I have a bit of a problem with the bashing of "historical returns". In many cases it is certainly the case that the returns are based on dumb luck, but saying that a good track record over a long timeframe is worthless is equivalent to saying that all fund managers understand the pricing of their market equally well. Frankly, I find this notion a bit ridiculous. If the performance of funds was truly random, there might be one or two investors in the world that beat the markets over a decade. In fact, there are a lot of such investors. Some of them operate public funds, but unless they happen to have an altruistic streak, each of them has a lot more to gain by just managing their own fortunes.