Why are Managed Futures Considered Alternative Investments?
Managed Futures are an investment strategy that allow the Portfolio Manager (PM) to go long or go short on a vast number of investable futures markets interchangeably, allowing a bet on the market direction going up or down at any time. Performance of Managed Futures products are based on the skills of the PM and their product design, which are quite different both in construction and performance than that of most traditional investment strategies which “buy and hold” stocks, bonds or real estate.
What Are Key Aspects of Setting Up a Quality Managed Futures Program?
Portfolio diversification and non-correlated performance are key aspects, but can also include:
- Non-correlated performance to stock market
- Ability to go long (buy) or short (sell) at any time
- Diversified list of futures markets (currencies, commodities, fixed income, stock indices, etc.)
How Do Managed Futures Help Create a Balanced Portfolio?
Managed Futures investment performance is typically not correlated at all with traditional investments like stocks or bonds. Given the different investment performance return stream, an allocation to Managed Futures within a portfolio that already contains stocks and bonds has historically proven to experience lower drawdowns and lower volatility.
What are the main reasons individual investors should consider Managed Futures?
Portfolio diversification. Non-correlated returns that tend to perform well when other asset classes do poorly.
What key benefits do separately managed accounts hold for individual investors?
- Daily Liquidity
- Daily Transparency
- Ability to use leverage in investment
- Negotiable investment fees
- Invested funds are in account that remains in client name (no ownership change)
Where can individual investors compare Commodity Trading Advisors and programs?
Investors can review manager profiles, programs, and strategies in the Coquest CTA Database:
What questions should an individual investor ask when selecting a CTA for alternative investing?
Individual investors should have a proper due diligence process, including both investment due diligence and operational due diligence to select a CTA. Some common CTA vetting questions include:
- What type of strategy is used?
- What futures markets are traded?
- What is the minimum investment size?
- What are the fees?
How have managed futures grown in popularity over the years?
Managed Futures investments started with just a few wealthy people in the inner circles of Wall Street trading firms back in the 1970s. Over time, as more traders emerged and began to offer products, the investment opportunities became more prevalent and available to the general public. First more programs came to market, spreading across the wealthy as popularity grew during the 1980s and 1990s. Then program minimums and access points expanded to commodity pools (a type of hedge fund) and mutual funds in the 2000s where investments could be made for as little as $2,500 USD instead of previous levels of $100,000 USD or more to access.