The term managed futures describes an industry comprised of professional money managers who manage assets on behalf of their clients. These money managers are also known as Commodity Trading Advisors (CTAs). Using the global futures markets, they implement their trading systems to take positions based on expected profit potential. As an asset class, managed futures are increasingly being recognized as an important investment alternative that may potentially enhance the returns and lower the overall volatility of a diversified investment portfolio.

 

:: "Managed futures are not any more risky than traditional equity investments.  Investment in a single commodity trading advisor is shown to have risks and returns, which are similar to investment in a single equity.  Moreover, a portfolio of commodity trading advisors is shown to have risks and returns which are similar to traditional investments."

 - Thomas Schneeweis, Professor of Finance at the University of Massachusetts,  2002 Academic Study "Benefits of Managed Futures"

 

:: "Portfolios... including judicious investments... in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone."

 - Dr. John K. Lintner, Harvard Economist

 

:: "Portfolios with as much as 20% of assets in managed futures yielded up to 50% more than a portfolio of stocks and bonds alone."

 - Chicago Mercantile Exchange

 

:: "It is a total myth.  Now that we had a bear market the mutual fund industry had done worse than [managed] futures ever did...now that these lessons are sinking in, I expect alternative investments to get more exposure... People will be better off [invested in alternative strategies]."

 - George Crapple, Co-Chairman of Millburn Ridgefield,  January 2003 Futures Magazine

 

According to the Chicago Board of Trade, in 2002, an estimated $45 billion was under management by trading advisors.  Just two years later in a study released by the Barclay Group, money under management during the 4th quarter 2004 had grown to $131.9 billion.

 

As of the third quarter of 2008, that total was $227 billion.  This exponential rate of growth has continued as asset managers globally begin to recognize the value inherent in incorporating managed futures portfolios into their overall investment portfolios.

 

Source: BarclayHedge

 

 

This chart illustrates the growth of managed futures since 2001.  The growth of assets under management point to the new found acceptance of the sustainability of this particular alternative asset class.

 

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2008 saw the destruction of many traditional portfolios comprised of U.S. equities, world equities, interest rate products and real estate holdings.

 

U.S. equities declined by almost 40%, world equities by 45%, interest rates across the G8 countries have collapsed to near zero and the real estate market has been pummeled by percentages similar to the declines in the equities markets.

 

All, of these asset classes went down together as global de-leveraging unfolded.

 

Portfolios, in our opinion, need non-correlated investment to protect against the types of upheavals felt in late 2008.  Managed futures are a proven non-correlated investment.

 

Managed futures had an average gain in excess of 18% (Credit Suisse/Tremont Managed Futures Index) during the same period proving itself to be not only a good stand alone investment but powerfully demonstrating the value of designing portfolios with an eye to non-correlation.

 

Thomas Jefferson in his 1781 notes to the State of Virginia observed “History by apprising [citizens] of the past will enable them to judge of the future”.

 

If we, as investors, cannot learn from these recent unsettling events in the financial markets then we are likely to be condemned to repeat those same mistakes in the future.

 

In our opinion, managed futures, as an emerging asset class, has earned its place within any modern diversified portfolio.

 

THE RISK OF LOSS IN TRADING FUTURES, OPTIONS AND OFF-EXCHANGE FOREX CAN BE SUBSTANTIAL.  PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 

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