Benefits of Managed Futures
Managed Futures, by their very nature, are a diversified investment opportunity. Trading advisors
have the ability to trade in over 150 different markets worldwide. Many funds further diversify by
using several trading advisors with different trading approaches.
The benefits of managed futures within a well-balanced portfolio include:
- Opportunity for reduced portfolio volatility risk
- Potential for enhanced portfolio returns
- Ability to profit in any economic environment
- Opportunity to participate easily in global markets
1. Reduced Portfolio Volatility Risk
The primary benefit of adding a managed futures component to a diversified investment portfolio
is that is may decrease portfolio volatility risk. This risk-reduction contribution to the
portfolio is possible because of the low to slightly negative correlation of managed futures with
equities and bonds. One of the key tenets of Modern Portfolio Theory, as developed by the Nobel
Prize economist Dr. Harry M. Markowitz, is that more efficient investment portfolios can be
created by diversifying among asset categories with low to negative correlations.
2. Potential for Enhanced Portfolio Returns
While managed futures can decrease portfolio risk, they can also simultaneously enhance overall
portfolio performance. … Substantiated by an extensive bank of academic research, beginning with
the landmark study of Dr. John Linter of Harvard University, in while he wrote that “the combined
portfolios of stocks (or stocks and bonds) after include judicious investments … in leveraged managed
futures accounts substantial less risk at every possible level of expected return than portfolios of
stocks (or stocks and bonds) alone. (Litner John, “The Potential Role of Managed Commodity Financial
Futures Accounts [and or funds] in Portfolios of Stocks and Bonds” Annual Conference of Financial
Analysts Federation, May 1983.)
3. Ability to Profit in any Economic Environment
Managed futures trading advisors can take advantage of price trends. They can buy futures positions in
anticipation of a risking market or sell futures positions if they anticipate a falling market. For
example, during periods of hyperinflation, hard commodities such as gold, silver, oil, grains and
livestock tend to do well, as do the major world currencies. 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 cab even use strategies employing
options on futures contracts that allow for profit potential in flat or neutral markets.
4. Ease of Global Diversification
The establishment of global futures exchanges and the accompanying increase in actively traded contract
offerings have allowed trading advisors to diversify their portfolios by geography as well as by
product. For example, managed futures accounts can participate in at least 150 different markets
worldwide, including stock indexes, financial instruments, agricultural and tropical profits, precious
and non-ferrous metals, currencies and energy products. Trading advisors thus have ample opportunity
for profit potential and risk reduction among a broad array of noncorrelated markets.
This information was copied from Portfolio Diversification Opportunities printed by the Chicago Board of
Trade.
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