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Managed futures made simple Print E-mail
Monday, 02 February 2009

ImageThe latter half of 2008 was one of the most difficult periods for investors in living memory as a growing economic crisis inflicted massive losses on almost all assets. Corporate bonds, equities and commodities all suffered significant declines and even hedge funds, which can usually protect against loss because of their ability to trade short, were hurt by the severity of the crisis.

Managed futures, however, defied the trend and delivered double digit gains for the year.

Managed futures traders – also called Commodity Trading Advisors (CTA) – invest in a range of global futures, forwards, and option contracts around the world.
 
Futures are a contract to buy or sell a certain amount of commodities or financial instruments for a fixed price at a set date, for instance we may agree to sell 100 ounces of gold at USD 800 per ounce three months from today. These instruments helped producers set a future price for their goods, making it possible to plan their forward inventories and are a necessary component of international trade.
 
CTA managers typically use one of two main approaches to trading these and similar instruments.
 
  •  Systematic strategies: Analyse historical price data to identify probable price movements and execute trades accordingly.
  •  Discretionary strategies: Investment decisions rely on the judgement of the investment manager.
 
Systematic strategies are most prevalent because they can be heavily automated, making it possible to deploy large amounts of capital in a wide range of markets simultaneously. These strategies typically seek to benefit from upwards and downwards price trends in a diverse range of markets that can include stock, bond, energy, agricultural and currency markets.
 
The investment process for these strategies is research intensive, subject to continual refinements and involves a strong focus on risk control.
 
There are several key advantages to this approach that can help explain why managed futures outperformed in 2008:
 
  • It is as easy to short a future as it is to trade long, so CTAs can profit in rising and falling markets with equal facility
  • Futures contracts can trade on margin, meaning only a small down payment is required to secure a contract. This explains why managed futures were largely unaffected by credit issues in 2008.
  • Markets traded are typically highly liquid, making it relatively cheap and easy for investors to open and close positions
  • Futures offer exposure to a wide range of sectors, regions and strategies   
  • Transactions are carried out through clearing houses which removes counterparty risk.
 

Managed futures have historically offered very low correlation to stocks and bonds, making them an excellent diversifier in a mixed portfolio. If you would like to know more about one of the world’s longest running managed futures programs, which is designed to analyse trends and capture opportunities across 150 markets and has achieved a compound annual return of 17.3% since inception, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it today.
 
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