The term managed futures describes an industry comprised of professional money managers known as commodity trading advisors (CTAs). Investment professionals have been using the managed futures products for more than 30 years. According to the Chicago Board of Trade, in 2002, an estimated $45 billion was under management by trading advisors.

There are many potential benefits of including managed futures in a diversified portfolio. By their very nature, managed futures are a diversified investment opportunity. Trading advisors have the ability to invest in over 150 different markets worldwide. Additional diversification benefits are achieved by using multiple trading strategies or advisors.

This multi-faceted diversification leads to four key benefits of adding managed futures to a portfolio:

1. Non-correlation to traditional asset classes
The primary benefit of adding an allocation of managed futures to a diversified investment portfolio is that it may decrease portfolio volatility risk. The potential to reduce risk is possible due to the low to slightly negative correlation of managed futures to traditional asset classes, such as stocks and bonds. One of the key tenets of Modern Portfolio Theory, as developed by Nobel Prize economist Dr. Harry Markowitz, is that more efficient investment portfolios can be created by diversifying among asset classes with low to negative correlations.

2. Potential for enhanced portfolio returns
With the combined potential of decrease portfolio risk and enhanced portfolio performance, managed futures are a very attractive portfolio addition. They also hold the unique potential of improving the overall investment quality of that portfolio. This is further substantiated by the landmark study of Dr. John Lintner of Harvard University, in which he noted that “the combined portfolios of stocks (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.”

3. Ability to profit independent of the economic environment
A successful managed futures trading advisor has the flexibility to go long or short with the markets. They can buy futures in anticipation of a rising market or sell futures in anticipation of a falling market, generating greater potential for profit regardless of current market conditions.

4. Global diversification
Managed futures accounts have the ability to invest in over 150 markets worldwide, including stock indexes, financial instruments, agricultural and tropical products, precious and non-ferrous metals, currencies, and energy products. This incredible diversification allows for ample profit opportunity and risk reduction among a broad array of non-correlated markets.

They are several ways to invest in managed futures including individual accounts, private pools or public funds. Please contact us for more information on how to benefit from including managed futures in your own portfolio.

The above information is taken from sources believed to be reliable, but it is not guaranteed by Bridgeton Global Investor Services, Inc. as to accuracy or completeness, and is intended for purposes of information and education only. Past performance is not necessarily indicative of future results.