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What are Managed Futures?
Managed futures are investments that can be administered on a black-box and/or discretionary basis by professional money managers, known as commodity trading advisors (CTAs). Clients’ assets are invested in the global futures markets, providing an opportunity to:
In the realm of investments, futures are an alternative asset class, separate from traditional asset classes such as stocks and bonds, and thus reacting differently to global events and economic meltdowns.
Why Managed Futures?
The potential to lower overall portfolio risk is the main benefit of adding managed futures to an otherwise balanced investment portfolio. This is possible because managed futures trade global markets having almost no correlation to traditional asset classes.
Correlation of Traditional and Alternative Asset Classes*:
*Based on a 10-year period ending December 31, 2007. Managed Futures: Barclay CTA Index; Bonds: Lehman Brothers; Long-Term U.S. Treasury Index; U.S. Stocks: S&P 500 Total Return Index.Source: BarclayHedge, Ltd.
Other exposure to the futures markets, such as with exchange-traded funds (ETFs), do not provide these same advantages, and even have disadvantages that may take their toll on your investments. ETFs are essentially a basket of investments that may be taxed fully as short-term capital gains. Conversely, managed futures are taxed by a 60/40 split between long-term and short-term capital gains. Furthermore, managed futures provide an opportunity for investors to access certain techniques and strategies for investing that are simply unavailable with ETFs.
Along with decreasing portfolio risk, managed futures provide an opportunity to profit during stock market declines and catastrophic global events. Even the drawdowns experienced in managed futures pale in comparison to those in traditional asset classes, generally allowing for shorter recovery times as well.
While some may not be as familiar with managed futures as an investment opportunity, corporations, banks, and mutual funds have been allocating funds to this asset class for decades. In fact, since 1980 managed futures have overwhelmingly outperformed other asset classes. An initial investment of $10,000 in a U.S. stock fund mirroring the S&P 500 in 1980 would be worth only about $288,000. Whereas, that investment would be worth more than $513,000 if it had instead been invested in managed futures, based on Center for International Securities and Derivatives Markets weighting.
How to Choose a Fund
With G-Force Managed Accounts, your broker will help determine the CTAs that fit your needs best, dependent on your risk tolerance, desired returns, target markets, and initial investment size. Your broker is committed to your interests and not to promoting any particular CTA.
Additionally, your assets are further protected by the oversight of the Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA), which have regulatory authority over CTAs. Your broker can provide you with information on particular CTAs’ track records, including their performance measures, drawdowns, and even losses.
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To view our informational brochure on managed futures, click here. |
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To access our CTA Analyzer to review information on particular CTAs, login here. |
To learn more about managed futures or for information on particular CTAs, contact us at 888-853-2261.