High Quality
Open the downloaded document, and select print from the file menu (PDF reader required).
Managed Futures Investing --Not Always a Trend-Following Strategy
Managed
Futures
Investing
‐‐
The
Future
of
Alternative
Asset
Management
July 2009
"The
improvements
from
holding
an
efficiently
‐
selected
portfolio
of
managed
accounts
or
funds
are
so
large
–
and
the
correlation
between
returns
on
the
futures
portfolios
and
those
on
the
stocks
and
bond
portfolio
are
so
surprisingly
low
(sometimes
even
negative)
–
that
the
return/risk
tradeoffs
provided
by
augmented
portfolios…
clearly
dominate
the
tradeoffs
available
from
portfolios
of
stocks
alone
or
from
portfolios
of
stocks
and
bonds.”
–
Professor
John
E.
Linter,
Harvard
Business
School
The
number
and
variety
of
markets
traded
in
managed
futures
investments
may
add
substantial
diversification
to
an
investment
portfolio.
Financial
instability
and
the
regulatory
environment
have
set
the
stage
for
the
strategy
to
prosper
with
no
correlation
to
traditional
markets.
2
Introduction
As
financial
markets
suffered
this
past
year,
one
strategy
in
particular
continued
to
stand
out
as
leading
the
pack
with
good
returns.
Historically,
managed
futures
have
been
a
more
under
recognized
asset
class
among
global
investors.
In
a
year
that
was
mainly
marked
with
investment
losses,
the
Barclay
CTA
Index
was
up
nearly
14
percent
in
2008.
Benefiting
from
clear
price
trends,
managed
futures
handily
beat
the
overall
markets,
with
the
average
hedge
fund
losing
nearly
22
percent,
according
to
BarclayHedge.
The
Standard
&
Poor’s
500
Index
and
the
tech
‐
laden
Nasdaq
Composite
Index
lost
nearly
40%
in
2008,
while
the
Dow
Jones
Industrial
Average
fell
33.8%.
The
sector,
with
nearly
$206
billion
in
assets
under
management,
is
expected
to
receive
substantial
inflows
as
investors
seek
strategies
away
from
the
traditional
markets
and
hedge
funds
that
performed
so
poorly
in
2008.
2602402202001801601401201008060402001985 86 87 88 89 90 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 3Q08
Growth
of
Managed
Futures
Industry
1985
to
September
30,
2008
Source:
Barclay
Group,
MAN
Group
PLC
3
The
Case
for
Managed
Futures
As
individual
and
institutional
investors
seek
alternative
investment
opportunities,
especially
when
U.S.
equity
markets
are
underperforming,
many
turn
to
managed
futures
for
an
additional
layer
of
portfolio
diversification.
With
the
ability
to
go
both
long
and
short,
futures
are
highly
flexible
financial
instruments
that
have
demonstrated
the
potential
to
profit
from
rising
and
falling
markets.
Fund
managers
who
utilize
the
futures
markets
make
speculative
investments
in
corn,
cotton,
crude
oil,
gold
and
other
commodities,
as
well
as
financial
futures
such
as
stock
indexes,
currencies
and
interest
rates.
Managers
will
use
technical
or
analytical
formulas
to
capitalize
on
price
fluctuations
of
various
durations.
This
paper
examines
the
current
state
of
the
managed
futures
industry
and
also
offers
a
fresh
perspective
on
one
approach
to
managed
futures
investing
that
is
not
typified
by
traditional
trend
‐
following
strategies.
Instead
it
focuses
solely
on
financial
futures
trading
in
only
a
handful
of
markets.
Indeed,
since
managed
futures
intend
to
profit
in
a
volatile
environment,
the
past
few
years
have
been
fertile
for
investors
with
managed
futures
portfolios.
Financial
instability
and
the
regulatory
environment
have
set
the
stage
for
the
strategy
to
continue
prospering
with
low
to
negative
correlation
with
traditional
investment
classes.
Managed
Futures
vs.
Traditional
Portfolio
Mix
During
Stock
Market
Declines
Add a Comment