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Managed Futures Investment management professionals have been using managed futures for more than 30 years. More recently, institutional investors such as corporate and public pension funds, endowments and trusts, and banks have made managed futures part of a well-diversified portfolio. In 2004, it was estimated that over $130 billion was under management by trading advisors. The growing use of managed futures by these investors may be due to the increased institutional use of the futures markets. Portfolio managers have become more familiar with futures contracts. Additionally, investors want greater diversify in their portfolios. They seek to increase portfolio exposure to international investments and non financial sectors, an objective that is easily accomplished through the use of global futures markets. The term managed futures describes an industry made up of professional money managers known as commodity trading advisors (CTAs). These trading advisors manage client assets on a discretionary basis using global futures markets as an investment medium. Trading advisors take positions based on expected profit potential. ************** With practically a zero correlation with stocks, one of the most attractive features of managed futures is its ability to add profound diversification to an overall investment portfolio. The ability of futures to enhance the returns of traditional investments has been documented in a study conducted by Goldman Sachs. Covering a 25-year period, the study concluded that by "allocating only 10% of a securities portfolio to commodities, investors can vastly improve their performance." Goldman Sachs' conclusion, concerning the value of commodities, was supported by another study published by the Chicago Mercantile Exchange, one of the world's preeminent futures exchanges. According to the CME study, "Portfolios with as much as 20% of assets in managed futures yielded up to 50% more than a portfolio of stocks and bonds alone." *************** Managed Futures, by their very nature, are a diversified investment opportunity. Our trading advisors have the ability to trade in over 150 different markets worldwide. Many investors 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 it 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 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. 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 and flight from risk {such as the post 2008 financial crisis}, hard commodities such as gold, silver, oil, grains and livestock tend to do well, as do the major non USD 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 can 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 non correlated markets. Please be advised that trading futures and options involves substantial risk of loss and is not suitable for all investors. There are no guarantees of profit no matter who is managing your money, and past performance is not necessarily indicative of future results. An investor must read and understand the current disclosure documents before investing. ***************** |
| Using Managed Futures To Enhance Your Investment Risk Profile In the above example, with only 20% of your investments allocated to Managed Futures as part of a diversified portfolio, the overall risk is reduced by almost 80% from –41.0% to –7.5% and the return also increases nearly 20% from +7.4% to +8.9%. This is primarily due to the lack of correlation and even negative correlation between some of the portfolio components in the diversified portfolio. There can even be negative correlation between stocks and managed futures as the two markets move independently from each other. *Courtesy CME Group: Managed Futures: Portfolio Diversification Opportunities. Talk To Us forxprofit@yahoo.com |
| Using Managed Futures To Diversify (As A 20% Component Of Your) Investment Portfolio |
Managed Forex Accounts Click Link Above To Open Your Own Personal Trading Account |
| Risk Disclosure Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. No "safe" trading system has ever been devised, and no one can guarantee profits or freedom from loss. In fact no one can even guarantee to limit the extent of losses. |