Managed Futures: Should They Be Part of Your Portfolio?

managed futures

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Last Updated on April 30, 2021 by Work In My Pajamas

It is impossible to identify the “average” investor. People invest their money in different ways and for different reasons. However, there is one aspect that virtually all investors have in common: the desire to profit from their investments. That is the underlying goal of every investor. However, it’s easy to be overwhelmed by the different investment opportunities available, so people often choose only a few types of investment vehicles. The result may be a portfolio that lacks balance or diversification.

Alternative Investments

Alternative investments offer another route for investors, one that could help them better diversify their portfolios. While conventional financial assets include cash, savings accounts, stocks and bonds, alternative investments fall outside of those categories. They include investments such as commodities, hedge funds, real estate, venture capital, managed futures, and even antiques and art. They think it would be better to say that while some of these are regulated by the SEC others fall under the CFTC (Commodity Futures Trading Commission) or are unregulated.

Unlike stocks and bonds, these alternative investments are usually illiquid and have traditionally been held by institutional investors; however, today there is growing interest among individual investors in options such as mutual funds or exchange-traded funds (ETFs), which contain portfolios of alternative assets.

Managed Futures

Managed futures refer to professionally managed portfolios of future contracts, or agreements to buy or sell a security or commodity at a specific price at a specific time in the future. Futures can potentially add balance to your portfolio and may improve your risk and return profile. They can also help reduce volatility and improve your overall returns, making your portfolio more efficient.

Managed futures can be traded long or short. They offer the opportunity to produce profits in both falling and rising markets — a necessity to combat the volatility of today’s markets. They traditionally have had low correlation to other types of assets, which makes them excellent hedges to a portfolio full of stocks and bonds when the economic outlook is uncertain.

Managed futures trading programs offer a great deal of variety as well, with six sectors and more than 150 markets. These programs can provide flexible strategies and varying timeframes to meet your personal investment goals. Additionally — unlike some types of alternative investments — managed futures offer transparency to let you track your investment at any time.

Two common trading approaches for managed futures are a market-neutral strategy and a trend-following strategy. The accompanying resource describes more about managed futures and the two strategies to choose from when investing.

Infographic created by IASG, a financial portfolio management company

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