Professionally Managed Futures
Managed Futures is an industry in which Professional Money Managers (aka CTAs, CPOs, Professional Fund Managers, etc.) direct investments into a wide range of diversified and unrelated global markets such as currencies, interest rates, equities, metals, energies, agricultural and more. They do this through the use of futures contracts.
Professionally Managed futures have been used successfully by investment management professionals for over 30 years. Institutional investors looking to maximize portfolio exposure continue to increase their use of managed futures as an integral component of a well-diversified portfolio. With the ability to go both long and short, managed futures are highly flexible financial instruments with the potential to profit from rising and falling markets. Moreover, managed future funds have virtually no correlation to traditional asset classes, enabling them to enhance returns as well as lower overall volatility.
By their very nature, managed futures provide a diversified investment opportunity. Trading advisors can participate in more than 150 different markets worldwide, including grains and other agricultural products, gold and other precious and nonferrous metals, global currencies, energy products, financial instruments and stock indices. Many funds further diversify by using several trading advisors with different trading approaches. Thus, investors have ample opportunity for profit potential and risk reduction among a broad array of uncorrelated markets.
While managed futures are new to some, banks, corporations and mutual fund managers have used futures markets to manage their exposure to price change for decades. Futures markets make it possible for these companies “to hedge” or transfer their risk to other market participants, including speculators, who assume this risk in anticipation of making a profit.
The case for diversification of one’s investment portfolio with managed futures, when supported by independent research and facts, is compelling. We attempt to present this information in a straightforward, easy to understand, provocative manner.
The performance enhancement and risk reduction benefits of incorporating managed futures in one’s investment portfolio have been well documented. However, particularly in today’s times of heightened market volatility, we believe the versatility of managed futures to potentially perform in volatile up and down markets, recessionary and boom times, or in virtually any economic condition is its most attractive feature. Whether markets are rising or falling, managed futures potentially stand ready to perform. Very few investments can make that claim!
Unfortunately, we find ourselves in the midst of the worst secular bear market since the Great Depression. A secular bear market is one which rises and falls, yet makes little progress over many years. We have experienced three such periods since the turn of the last century. Average length of previous secular bear markets was 18 years, each lasting anywhere from a minimum of 16 to a maximum of 21 years. Thus, if you add 18 years to the start of the current secular bear market, which began in 2000, plus or minus three years, the current secular bear market that began in 2000 may not end until sometime in the 2015 to 2021 time period. Given the worst fundamentals since the Great Depression, chances are it won’t end until sometime around 2020. The versatility of managed futures may make it ideally suited to deal with the volatile up and down markets that we foresee in the years ahead that are typical in secular bear markets.
If you haven’t done so already, build a carefully designed, highly diversified, long-term portfolio today—even if it means selling or repositioning your current investments. Schedule an appointment with us immediately and we’ll help get you protected.
Managed futures, sometimes known as managed accounts, are investments managed by a professional money manager known as a Commodity Trading Advisor (CTA).
These advisors manage client assets on a discretionary basis using global futures markets. Managed futures allow investors to invest in futures without having the day-to-day responsibilities of managing and placing trades. Additionally, managed futures provides a number of benefits including diversification and non-correlation from traditional investments such as stocks and bonds, investing in commodities, currencies, and equities globally.
Key benefits of managed futures include:
Broad Diversification Opportunities
The opportunity to seek profits in diverse investments beyond traditional assets such as agriculture, energy, metals, commodities, and a wide variety of instruments on regulated exchanges globally.
Absolute return strategies enable CTAs to produce returns regardless of market direction, employing a broader toolkit of investment instruments.
Non-correlation to Stocks and Bonds
A diversified managed futures program potential for profit or loss does not directly correlate to movements in traditional investments such as stocks and bonds.
Additional benefits of managed futures include:
- Not only is there a strong case for managed futures in dismal economic periods, but these vehicles also have exhibited relative consistency throughout market cycles (exhibiting absolute return).
- CTAs are able to employ different trading strategies, trade additional markets, and implement separate trading time frames than traditional investments.
- Managed futures, via investments in individually managed accounts, offer enhanced transparency and liquidity over traditional alternative investments.
- Reduces the burden of tracking and trading individual investments by having your account traded by a professional, licensed Commodity Trading Advisor.
Are Managed Futures for Me?
Managed futures can offer almost all portfolios the benefit of diversification, giving them potentially greater returns while reducing risk. However, every investor should consider the following factors.
Managed futures should not be viewed as a short-term investment.
It is important to note that managed futures should be considered a long-term investment and one that should be utilized in a portfolio for greater diversification.
All investments carry risk, including managed futures.
As with any investment, including stocks, bonds, and real estate, managed futures carry a certain level of risk. It is important to understand these risks and review track records, the use of leverage, and disclosure documents. Managed futures may not be right for everyone. It is important to understand all the risks involved before investing.
For more information, contact a VAM Advisor.
There is a risk of loss when trading futures. Futures trading is not appropriate for all investors.