Don’t Get Caught in the Storm

“Portfolios of stocks and/or bonds combined with managed futures showed substantially less risk at every possible level of expected return than portfolios of stocks and/or bonds alone.”

~ Dr. John Lintner, Professor of Economics at Harvard University

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The main benefit of adding managed futures to a balanced portfolio is the potential to decrease portfolio volatility. Risk reduction is possible because managed futures can trade across a wide range of global markets that have limited long-term correlation to most traditional asset classes. While managed futures, on their own, tend to have higher volatility and substantial risk, managed futures funds have historically performed well during adverse economic or market conditions for stocks and bonds, thereby providing excellent downside protection in most portfolios.


A portfolio that includes managed futures, historically, would have provided higher returns and lower risk than one without managed futures at all. In this Efficient Frontier example, the addition of managed futures to the typical stock and bond portfolio increases the annual rate of return, while lowering the volatility of the portfolio. There is a point of diminishing returns, and the curve can help find maximum efficiency. In this case, the data from 1994 to February 2012 sees the optimal portfolio for the highest return at the lowest risk level to be 40% stocks, 40% managed futures, and 20% bonds. There’s no guarantee that this curve will look the same five years from now, or even a year from now. And the Efficient Frontier has a flaw in that it considers only volatility when assessing risk when there are other factors to be considered.


Managed futures are highly flexible and traded on many regulated financial and commodity markets around the world. By broadly diversifying across global markets, managed futures can simultaneously profit from price changes in stock, bond, currency and money markets, as well as from diverse commodity markets having limited correlation to traditional asset classes. Though managed futures provide many potential benefits, trading futures and options involves the risk of loss, you should consider carefully whether futures or options are appropriate to your financial situation.


Managed futures trading advisors can generate profit in both increasing or decreasing markets due to their ability to go long (buy) futures positions in anticipation of rising markets or go short (sell) futures positions in anticipation of falling markets. Just as trading advisors can profit from either an increasing or decreasing market, there is a risk of loss in either direction. Moreover, trading advisors are able to go long or short with equal ease. This ability, coupled with their limited correlation with most traditional asset classes, have resulted in managed futures funds historically performing well relative to traditional asset classes during adverse conditions for stocks and bonds. For example, during periods of hyperinflation, hard commodities such as gold, silver, oil, grains and livestock tend to do well, as do the major world currencies. Trading advisors can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets. This ability to accommodate and protect against unpredictable events can be invaluable in today’s volatile global markets.


Drawdowns, or the reduction a fund might experience during a market retrenchment, are an inevitable part of any investment. However, because managed futures trading advisors can go long or short — and typically adhere to strict stop-loss limits* — managed futures funds have historically limited their drawdowns more effectively than many other investments.

*Stop-loss execution is not guaranteed, particularly in periods of extreme volatility.

Rapidly growing asset class.

Growth over the past decade in managed futures has been substantial. In 2002, it was estimated that more than $45 billion was under management by managed futures trading advisors which increased to $327 billion by the end of the 2015.

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