Why Managed Futures & Managed Forex?
The Case for Managed Futures
In today’s investment arena, with an ever-increasing need for diversification, transparency, and liquidity, investors continue to look beyond traditional investments. Many investors, ranging from large institutional firms to individuals, are discovering that these needs can be satisfied without compromising performance by investing in managed futures and managed forex.
Managed futures and managed forex offer a number of key benefits, most notably:
Absolute Return—Alpha Generation
Diversification
Transparency and Liquidity
Absolute return – Alpha Generation
CTAs may be commonly associated with “absolute return strategies,” as returns generated can be independent of financial markets. Absolute return strategies enable CTAs to produce returns regardless of market direction. While traditional strategies implement long-only techniques to drive client return, absolute return strategies employ a broader toolkit of investment instruments. These instruments may include short selling, futures, options, derivatives, and use of leverage. It is this versatility of absolute return strategies that drives alpha generation, or risk-adjusted outperformance relative to a benchmark. We can compare risk-adjusted performance between benchmarks using Sharpe ratios, where a higher ratio represents better risk-adjusted returns.
Diversification
Managed futures are investment vehicles that, when blended into a traditional portfolio, can achieve diversification, reduce portfolio volatility, enhance overall return potential, and provide protection during extreme or down equity market cycles. This historically based model demonstrates that adding managed futures to a blended portfolio of stocks and bonds offers benefits in performance and a reduction in volatility.
Transparency and Liquidity
A significant benefit of a managed account with a CTA is its increased transparency and liquidity compared to investment products like hedge funds. These attributes are especially desirable to investors in the current climate.
How do managed futures increase transparency and liquidity over a traditional investment?
With a managed account, investor money is deposited with the investor’s brokerage firm and maintained in a customer segregated funds account. While the trading advisor directs trading for the account, the investor has a full view of all trades, positions, and balances, ensuring complete transparency.
Managed futures primarily deal in listed markets, meaning that orders are entered on an exchange where counterparties are abundant and orders are settled daily by the clearing houses. This provides liquidity and limits the potential risk of counter- parties defaulting. In addition, managed accounts and managed futures funds generally do not have a “lock up” period as is commonly found with hedge funds. This means that clients may request to redeem their capital at any time.