Benefits of Managed Futures

By their very nature, managed futures provide a diversified investment opportunity. Trading advisors can participate in more than 150 global markets; from grains and gold to currencies and stock indices. Many funds further diversify by using several trading advisors with different trading approaches. The goals are to reduce the overall risk as measured by maximum drawdowns and/or increase return. There is no guarantee that these goals can be achieved.

The potential benefits of managed futures within a well-balanced portfolio include:

Reduced Portfolio Volatility Risk:The primary benefit of adding a managed futures component to a diversified investment portfolio is that it might decrease portfolio volatility risk. This risk-reduction contribution to the portfolio is possible because of the low- to slightly negative correlation of managed futures with equities and bonds. One of the key tenets of Modern Portfolio Theory, as developed by the Nobel Prize economist Dr. Harry M. Markowitz, is that more efficient investment portfolios can be created by diversifying among asset categories with low to negative correlations.

Ability to Profit in Any Economic Environment: Commodity Trading Advisors can take advantage of price trends in any type of economic environment. They can buy futures positions in anticipation of a rising market or sell futures positions if they anticipate a falling market. For example, during periods of inflation, physical commodities such as gold, silver, oil, grains and livestock tend to do well, as do the major world currencies. During deflationary times, futures provide an opportunity to profit by selling into a declining market with the expectation of buying, or closing out the position, at a lower price. CTAs can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets.

Ease of Global Diversification: CTAs can diversify their portfolios by geography as well as by product. More than 150 markets–including stock indexes, financial instruments, agricultural and tropical products, precious and nonferrous metals, currencies, and energy products–exist on exchanges around the globe. Thus, trading advisors have ample opportunity for profit potential and risk reduction among a broad array of non-correlated markets.

Professional Management: The benefits that professional management offers with managed futures are similar to those experienced with mutual funds and investment advisors. These include:

  • Full-time dedication to the markets
  • A disciplined trading approach
  • Money management techniques that seek to control losses and protect profits
  • Strategies that attempt to balance risk and reward

Be advised that trading futures and options involves substantial risk off loss and is not suitable for all investors. An investor must read and understand the Commodity Trading Advisors current Disclosure Document before investing. There are no guarantees of profit no matter who is managing your money and past performance is not necessarily indicative of future results.