Managed Futures For Portfolio Diversification

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Why do I Need Managed Futures if I Invest in Stocks and Bonds?

July 13, 2017

How are managed futures different than stocks and bonds?

You ask, we answer! Each week we take a frequently asked question from our clients, and give our answer! Let’s begin with the question… “Why do I need managed futures if I invest in stocks and bonds?”

Let’s take it back to the basics and deepen your understanding of managed futures. Managed futures are a segment of the alternative investment industry. This industry offers a diverse array of investments such as; real estate, private equities, commodities, and so on. Look here to receive further education on managed futures.

stocks and bonds blog photo

What makes up this industry segment?

Managed futures are made up of commodity trading advisors (CTAs). CTAs are professional account managers registered with the Commodity Futures Trading Commission (CFTC). A CTA registration allows the manager the ability to manage customer accounts and pooled funds. CTAs use futures, commodities, options, and forex to invest in various commodities and financial markets.

Now that we have covered the basics, let’s get back to your question.

So, why do I need managed futures if I invest in stocks and bonds?

Diversification in investments is important, and it works by putting your money in multiple asset classes. The large drop in 2008 taught us the importance of diversification.

Non-correlated investments and a diversified portfolio have the potential to maintain portfolio performance and reduce risk during market drops.

Owning different securities is often recommended, however, there are many factors that may cause all stocks to rise and fall at the same time (i.e. high correlation). It makes sense to invest part of your stock and bond portfolio in managed futures, which has the potential to profit in changing markets.

What does this mean?

Managed futures are generally non-correlated with stocks and bonds, meaning that factors which cause a fall in stock prices may not have the same effect on CTA performance. Since managed futures as an asset class has low correlation to stocks & bonds, your portfolio may profit even when markets are down. However, diversification gives no guarantee that your portfolio will profit.

First time hearing about managed futures?

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Give us a call and one of our Investment Specialists will assist you further.

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Categories: Managed Futures, Portfolio Diversification
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