The current growth in managed futures assets is closely aligned with changing sentiment among sophisticated investors, who are now seeking transparency, liquidity and lower downside volatility within their portfolios, all of which managed futures can potentially provide.
“A lot of studies have proved that managed futures can blend well with stocks and bonds,” said Scott Altenburg, CEO and senior partner at InvestCore Partners, a managed futures brokerage firm based in Orange County, California. “They suggest that an allocation of 10% to 30% of a portfolio to managed futures has the ability to increase performance and reduce volatility and drawdown.”
InvestCore specializes in designing investment portfolios for institutional and individual investors, and selecting Commodity Trading Advisors (CTA) that best meet client needs.
“Managed futures are a noncorrelated investment vehicle, professionally managed, kind of a hybrid between a hedge fund and a mutual fund,” he said. “It’s completely liquid, completely transparent, with documented track records, and most programs have no load fees on either side, and trade in the U.S. market.”
“Investors that are more doom and gloom, who think the stock market is going to fall apart, are more likely to get more aggressive in managed futures because they don’t want to be tied in stocks,” he continued. “Most people now realize that bonds are probably not a good long-term investment vehicle, and they’re starting to look for other places to roll those funds into. We have programs as little as $10,000 minimum units and others with 7-figure minimum unit size.”
Managed futures gained 0.87% in May, according to the Barclay CTA Index compiled by BarclayHedge. The Index is now up 0.21% in 2014. “An easing of macro concerns coupled with the European Central Bank’s efforts to head off deflation helped fuel rallies in equity and interest rate markets,” said Sol Waksman, founder and president of BarclayHedge, in a statement.
In May, six of Barclay’s managed futures indices moved back into positive territory for the year. The BTOP50 Index has a 0.33% return year to date, Agricultural Traders are up 0.51%, Discretionary Traders have gained 0.20%, Systematic Traders have returned 0.13%, and Diversified Traders are up 0.06%.
Managed futures can be a welcome addition to a portfolio or even a solid standalone investment, but they are not for everyone, and Altenburg spends a good deal of effort on explaining the nuances of the strategy to potential investors. InvestCore offers free educational material and personalized portfolio reviews to potential investors to help them decide if managed futures is right for them.
“An important advantage of managed futures is the opportunity to respond swiftly on a highly leveraged basis whenever and wherever in the financial and commodity markets major price movements occur ‐‐‐ either upward or downward ‐‐ and to do so without liquidating other investment holdings or adding to overall portfolio risk,” he said.