Why Managed Futures?

What is Managed Futures?

Managed futures is a liquid alternative investment strategy used by specialized managers that have registered with the Commodity Futures Trading Commission (CFTC) as Commodity Trading Advisors, or CTAs for short. These CTAs manage portfolios of exchange-cleared futures contracts, and sometimes other derivative instruments, representing four major asset classes – global stock indices, global fixed income instruments, currencies, and commodities. While a number of different investment approaches are used by CTAs to generate returns, the most common, and the primary driver of managed futures returns, is trend following. Sometimes referred to as momentum, a trend-following methodology analyzes the directional movement of markets, often over multiple timeframes, and establishes long or short positions in the direction of the predominant trend. Positions are then held until the trend changes direction.

A key differentiator for a managed futures strategy is the way in which it initiates and manages its positions. Unlike traditional approaches that allocate capital (for example, a typical 60/40 stock-bond portfolio), most managed futures strategies use the concept of risk budgeting, which allocates risk rather than capital. To do so, position sizes are calculated such that they are equal to the inverse of volatility. This means that as a market’s volatility increases its position will be decreased, and as volatility decreases its position will be increased. This is a powerful risk management tool that has allowed managed futures strategies to deliver returns that are more stable and consistent than most other investment strategies. In most cases, using a risk budgeting approach rather than a capital allocation approach will yield higher risk-adjusted returns, lower drawdowns, and lower tail risk, which are major reasons for the strategy’s longevity.

With a documented track record of success that goes back over thirty years, managed futures is one of the oldest alternative investment strategies available. Known as a divergent strategy, it typically performs best during periods of market stress, which is precisely when investors need it the most. Today, this is commonly referred to as “crisis alpha.” For example, managed futures was one of the few strategies that was profitable during the Great Recession of 2008-2009. As a result, it has received increased recognition from a wide range of investors and is currently among the fastest growing alternative investment strategies. Since its humble beginnings almost four decades ago, it has repeatedly proven itself as one of the few “true” alternative investments – capable of enhancing portfolio returns and decreasing portfolio risk.

SP vs MF VAMI

 

Growth in MF

DISCLAIMER - THE INFORMATION CONTAINED HEREIN IS INTENDED FOR USE BY QUALIFIED ELIGIBLE CLIENTS AS DEFINED IN CFTC REGULATION 4.7.  FUTURES, FORWARD AND OPTIONS TRADING IS SPECULATIVE, INVOLVES SUBSTANTIAL RISK AND IS NOT SUITABLE FOR ALL INVESTORS.  THIS INFORMATION IS NOT A SOLICITATION FOR INVESTMENT.  SUCH INVESTMENT IS OFFERED ON THE BASIS OF INFORMATION AND REPRESENTATIONS MADE IN THE APPROPRIATE OFFERING DOCUMENTATION.

PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE CLIENTS, THE INFORMATION PRESENTED ON THIS WEB SITE IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION.  THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR DISCLOSURE.  CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR OF ANY OF THE INFORMATION PRESENTED ON THIS WEB SITE.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS.  NO REPRESENTATION IS BEING MADE THAT ANY INVESTOR WILL OR IS LIKELY TO ACHIEVE SIMILAR RESULTS.  THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL.