Following the global financial crisis of the late 2000’s, managed futures became increasingly popularized as an asset class that could potentially offer diversification within a traditional equity and bond portfolio.
Managed futures are traded and managed by professional money managers known as Commodity Trading Advisors (CTAs). CTAs are subject to regulatory oversight by the National Futures Association, and to the rules and regulations issued by the Commodity Futures Trading Commission (CFTC).
CTAs utilize a number of different research methodologies that may or may not include technical analysis, fundamental research, systematic and discretionary trading. Each managed futures program can be constructed around a specific strategy such as trend following, counter trend, arbitrage, long/short, option writing, and fundamental analysis.
Potential Benefits and Risks of Managed Futures
Portfolio Alpha and Volatility Mitigation
Considered by some as an “alternative investment” class, managed futures may help investors offset the portfolio risk and volatility of a traditional stock and bond portfolio without limiting upside potential. As such, a managed futures allocation may be beneficial to achieving specific investment objectives.
As an alternative to a traditional asset allocation approach, managed futures may help diversify your portfolio to reduce its correlation to asset classes such as stocks, bonds, cash, and real estate. And with futures trading on over 150 markets globally, managed futures offer diversification internationally.
Flexible to navigate turbulent markets
Certain managed futures strategies offer investors the potential to mitigate losses and yield positive returns during volatile equity markets. And other strategies (such as those using long and short positions) are able to produce positive returns during turbulent macroeconomic periods (such as inflation, deflation or recession) that can stress a traditional stock and bond portfolio.