Evaluating Managed Futures
With choices aplenty, many investors don't realize there are actually lots of investment platforms that aren't common knowledge to the public. You are probably familiar with the way mutual funds operate, but may not realize there is also a way you can invest in commodity futures markets through a passive, hands-off approach-via a managed futures account without having to fully understand the commodity index.
Who makes the decisions?
Financial decisions are liaised through the fund manager who is given complete power of attorney for making decisions on behalf of the futures program. Futures and options can serve numerous financial programs and managed futures accounts are no different.
These managers use a variety of trading approaches; some rely exclusively on technical analysis to make their decisions, others, fundamental information, and others, a variety of both. Fund managers are called "CTAs" and must be registered with the NFA. Managed futures accounts are becoming increasingly popular with corporate, institutional and individual investors. They are becoming less of an "alternative investment" platform. Why Managed Futures? Many investors find managed futures can reduce volatility in their overall investment portfolio. Correlation between managed futures and stock prices are virtually nil. This is key because a truly diversified portfolio has to have uncorrelated investments or the programs will all suffer through the same ups and downs. In Modern Portfolio Theory, developed by Nobel Prize economist Dr. Harry Makowitze, he strongly suggests that the most efficient investment portfolios are achieved by diversifying among assets with very low correlations.
As uncorrelated at they come, managed futures are not generally tied to other asset classes.
Measuring Risk
One way to compare risk is to measure the magnitude of the worst cumulative loss in value of an investment from any peak in performance to the subsequent low. Managed futures have significantly lower drawdowns than the S&P 500®, the NASDAQ®, and the MSCI® Europe, Australasia, and Far East (EAFE®) Index .
Pricing trends can be capitalized on by trading advisors. For example, commodities like gold, silver, and grains tend to profit very handsomely during periods of hyperinflation. {During deflationary times, futures provide an opportunity to profit by selling into a declining market with the expectation of buying, or closing out the position, at a lower price. Trading advisors can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets While managed futures can decrease portfolio risk, they can also simultaneously enhance overall portfolio performance.. The average CTA program was up 14% last year which is 51% greater than the stock market according to the Barclay CTA Index. In fact, the Barclay CTA Index has gained an annual average of 12.2% since 1980 and lost money in only three of those calendar years.
Academic research shows that commodity futures have kept pace with inflation and rivalled the returns on stocks, with the extra virtue of tending to go up whenever stocks or bonds go down.
Managed futures are not appropriate for everyone.
Who makes the decisions?
Financial decisions are liaised through the fund manager who is given complete power of attorney for making decisions on behalf of the futures program. Futures and options can serve numerous financial programs and managed futures accounts are no different.
These managers use a variety of trading approaches; some rely exclusively on technical analysis to make their decisions, others, fundamental information, and others, a variety of both. Fund managers are called "CTAs" and must be registered with the NFA. Managed futures accounts are becoming increasingly popular with corporate, institutional and individual investors. They are becoming less of an "alternative investment" platform. Why Managed Futures? Many investors find managed futures can reduce volatility in their overall investment portfolio. Correlation between managed futures and stock prices are virtually nil. This is key because a truly diversified portfolio has to have uncorrelated investments or the programs will all suffer through the same ups and downs. In Modern Portfolio Theory, developed by Nobel Prize economist Dr. Harry Makowitze, he strongly suggests that the most efficient investment portfolios are achieved by diversifying among assets with very low correlations.
As uncorrelated at they come, managed futures are not generally tied to other asset classes.
Measuring Risk
One way to compare risk is to measure the magnitude of the worst cumulative loss in value of an investment from any peak in performance to the subsequent low. Managed futures have significantly lower drawdowns than the S&P 500®, the NASDAQ®, and the MSCI® Europe, Australasia, and Far East (EAFE®) Index .
Pricing trends can be capitalized on by trading advisors. For example, commodities like gold, silver, and grains tend to profit very handsomely during periods of hyperinflation. {During deflationary times, futures provide an opportunity to profit by selling into a declining market with the expectation of buying, or closing out the position, at a lower price. Trading advisors can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets While managed futures can decrease portfolio risk, they can also simultaneously enhance overall portfolio performance.. The average CTA program was up 14% last year which is 51% greater than the stock market according to the Barclay CTA Index. In fact, the Barclay CTA Index has gained an annual average of 12.2% since 1980 and lost money in only three of those calendar years.
Academic research shows that commodity futures have kept pace with inflation and rivalled the returns on stocks, with the extra virtue of tending to go up whenever stocks or bonds go down.
Managed futures are not appropriate for everyone.