What Are Managed Futures?
Managed futures is a category of alternative investments associated with Commodity Trading Advisors (CTA’s), as well as commodity funds, futures funds and pools. CTA’s are professional money managers who specialize in using global futures and options markets as trading vehicles for their clients. These managers can take both long and short investment positions to provide clients potential for gains throughout market cycles, employing a variety of trading strategies and styles. These may include systematic or discretionary trading systems as well as fundamental and technical analysis. CTA’s can offer investors direct exposure to international financial and non-financial asset sectors, including: Energies, Financials, Currencies, Metals, Grains, Meats and Softs.
Why Managed Futures
Managed futures have historically shown a low correlation to other markets and the ability to perform independently of traditional investments. They can help balance portfolio risk and potentially maximize profit in various market cycles. Moreover, managed futures offer a number of key benefits, most notably, Absolute Return, Diversification, Transparency and Liquidity.
Absolute Return
Absolute return strategies enable CTAs to produce returns regardless of market direction. While traditional strategies implement long-only techniques to drive client return, absolute return strategies employ a broader toolkit of investment instruments, including short selling, futures, options, derivatives, and use of leverage. It is this versatility of absolute return strategies that drives alpha generation, or risk-adjusted outperformance relative to a benchmark.
Diversification
Managed futures are investment vehicles that, when blended into a traditional portfolio, can achieve diversification, reduce portfolio volatility, enhance overall return potential, and provide protection during extreme or down equity market cycles.
Transparency & Liquidity
A significant benefit of a managed account with a CTA is its increased transparency and liquidity compared to investment products like hedge funds. These attributes are especially desirable to investors in the current climate
How do managed futures increase transparency & liquidity over a traditional investment?
- With a managed account, investor money is deposited with the investor’s brokerage firm and maintained in a customer segregated funds account. While the trading advisor directs trading for the account, the investor has a full view of all trades, positions, and balances, ensuring complete transparency (this applies to managed accounts not fund structures).
- Managed futures primarily deal in listed markets, meaning that orders are entered on an exchange where counter-parties are abundant and orders are settled daily by the clearing houses. This provides liquidity and limits the potential risk of counter- parties defaulting. In addition, managed accounts and managed futures funds generally do not have a “lock up” period as is commonly found with hedge funds. This means that clients may request to redeem their capital at any time.
- Managed futures funds that invest in managed accounts will have the potential for more transparency and liquidity than funds where investor money is pooled and those that invest in other funds.