Futures Markets / CTAs
Managed futures are an investment vehicle that has futures and options contracts as its underlying asset. These assets include: agriculturals, precious metals, softs, and energies are traditional examples of commodities, but foreign currencies, stock index contracts and certain financial instruments are also part of today’s commodity markets.
Using Managed Futures for Profit Potential through Diversification
One of the major arguments for diversifying into managed futures is their potential to lower portfolio risk. Such an argument is supported by many academic studies of the effects of combining traditional asset classes with alternative investments such as managed futures. Dr. John Lintner of Harvard University is perhaps the most cited for his research in this area.
I would also add: Dr. John Lintner of Harvard University, wrote that, “the combined portfolios of stocks (or stocks and bonds) after including judicious investments. In leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone.” Lintner’s research is substantiated by the long-term MAR study.
The addition of managed futures to a client’s portfolio does not mean that a portfolio will be profitable or that it will not experience substantial losses and that the studies conducted in the past may not be indicative of current time periods or of the performance of any individual CTA.
Commodity Trading Advisors
CTAs generally manage their clients’ assets using proprietary trading strategies or methods that may involve going long or short in futures contracts and options contracts in areas such as metals (gold, silver), grains (soybeans, corn, wheat), equity indexes (S&P futures, Dow futures, NASDAQ 100 futures), soft commodities (cotton, cocoa, coffee, sugar) as well as foreign currency and U.S government bond futures. In the past several years, money invested in managed futures has more than doubled and is estimated to continue to grow in the coming years especially when hedge fund returns flatten and stocks underperform.
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