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Does the addition
of a managed futures
component to a portfolio
enhance overall
returns?
The Chicago Board
of Trade's booklet,
“Managed Futures,
Portfolio Diversification
Opportunities,”
shows a portfolio
with the greatest
risk and least returns
comprised of 55%
stocks, 45% bonds,
and 0% managed futures
while a portfolio
exhibiting the greatest
returns and least
risk, comprised
45% stocks, 35%
bonds, and 20% managed
futures.
Source:
CBOT
Past performance
is not necessarily
indicative of future
results.
The following chart
shows the return
expectancy curve
generated by the
addition of managed
futures to a traditional
portfolio:
Source: CBOT
Past performance
is not necessarily
indicative of future
results.
Hypothetical example
of a managed futures
component within
a portfolio:
The following hypothetical
example should assist
in better understanding
how a relatively
small investment
in managed futures
can enhance overall
portfolio performance:
A $500,000 portfolio
of stocks and bonds
returning a 10%
profit would yield
a profit of $50,000.
Now let's assume
your total portfolio
is $500,000 and
you invest 80% in
stocks and bonds
($400,000) and 20%
in Managed Futures
($100,000). Let's
assume at the end
of the year you
realize a 10% return
on your stocks and
bonds and a 25%
return on managed
futures. The result
would be as follows:
|
$500,000
Portfolio
% of
Portfolio
Return
|
|
Stocks
& Bonds |
$400,000
80%
allocation |
10%
Profit:
$40,000 |
|
Managed
Futures
|
$100,000
20%
allocation |
25%
Profit:
$25,000 |
| |
|
Total
Profit:
$65,000 |
Now let's assume
you earn 10% on
the 80% of your
portfolio invested
in stocks and bonds,
but lose 25% in
managed futures.
The results would
be as follows:
|
$500,000
Portfolio
% of
Portfolio
Return
|
|
Stocks
& Bonds |
$400,000
80%
allocation |
10%
Profit:
$40,000 |
|
Managed
Futures
|
$100,000
20%
allocation |
10%
Loss:
($25,000)
|
| |
|
Total
Profit:
$15,000 |
As evidenced in
the hypothetical
example shown above,
by investing just
20% of your portfolio
in futures the overall
portfolio performance
was significantly
enhanced on a percentage
weighted basis.
You can also see
that a 25% loss
in managed futures
would still leave
you with a net profit
of $15,000 if your
stock and bond allocation
returned 10%.
Important Disclaimer:
The above hypothetical
example is strictly
for illustration
purposes only, to
help you better
understand the potential
impact of portfolio
diversification.
In no way is the
example to be construed
as the returns you
might receive in
stocks and commodities.
Of course, in actual
investing, your
results can be better
or worse.
The risk of loss
exists in futures
trading.
THE RISK OF TRADING
FUTURES, OPTIONS
AND OFF-EXCHANGE
FOREX CAN BE SUBSTANTIAL.
PAST RESULTS ARE
NOT NECESSARILY
INDICATIVE OF FUTURE
RESULTS.
Disclosure Statement
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