Liquid alternative mutual funds provide retail and institutional investors with access to fund managers with expertise in particular strategies, especially managed futures.
“Managed futures is a great portfolio diversifier,” Tom Florence, CEO of 361 Capital, an asset management company specializing in liquid alternatives mutual funds, told Markets Media. “It performed very well in periods like '08 and '09, which is when people were afraid of equities, and they needed that portfolio diversification. Managed futures can act as a risk reducer, and a return enhancer, in volatile times.”
Tom Florence, 361 Capital
Managed futures have been out of favor for three years or more because of the runaway bull market, but that's beginning to change. “As we see more choppiness in the market, as we see less of a dominant S&P, opportunities in managed futures will present themselves,” Florence said.
361 Capital, whose two managed futures mutual funds have $660 million in assets, has launched 361 Global Macro Opportunity Fund, managed by Blaine Rollins, who joined 361 Capital in 2011 and was formerly a portfolio manager at Janus.
“It's going to be taking advantage of a lot of the systematic tools and algorithms we have here at the firm, but also take advantage of Blaine's qualitative skills, and his ability to determine where to best invest around the globe, and exactly what type of securities to be invested in,” said Florence.
As lead manager of the 361 Global Macro Opportunity Fund, Rollins invests in a wide range of asset classes that provide exposure principally to U.S. and foreign equity securities, fixed income securities, commodities and currencies. He also can invest in indices based on a individual securities, commodities and currencies.
“We’ve created an analytical framework and models that drives asset allocation, and we’ve built in the flexibility to incorporate proprietary screens that will allow us to enhance the portfolio,” Rollins said in a statement. “It’s a great combination of my view on macro trends and the financial markets with a systematic approach to investing.”
361 Capital is unique in its approach to managed futures in that it invests only in equity futures.
“We're offering counter-trends managed futures funds,” said Florence. “We look for inflection points in the market, when either the market is oversold or overbought. We're making an investment that is long equity futures or short equity futures, depending on the direction we think the market is going to go.”
The simplicity of this approach resonates with investors when Florence explains what managed futures are all about.
Florence's definition of managed futures is an investment that is based on looking for absolute returns in futures contracts of different types of assets, be they commodities, currencies, or equities.
“Basically you are investing in the future direction of a particular futures contract with the goal of diversifying your portfolio, lowering the correlation to the other assets in your portfolio, and providing a return stream that would be different than the kind of return stream you're getting in your current portfolio," he said.
Florence continued, “Things get more complicated when you start talking about all of the other commodity types that are out there. ‘I'm going to be long soybeans, but I'm going to be short currencies. Or long the dollar, but going to be short the yen.’ We can explain to an investor very simply that we take the contrarian approach, and that we are going to invest in equity futures, we are either going to be long or short, or we're going to be in cash.”
Featured image via Dollar Photo Club
