About Managed Futures

Background

Managed futures is a segment of the hedge fund industry; managers trade a range of futures and foreign exchange markets with the aim of profiting from price movement.

Commodity Trading Advisor (CTA) is the name given to the investment managers in managed futures; CTAs are in fact traders, who trade many markets, not just commodities. CTAs trade futures on equities, bonds, interest rates, currencies and commodities and take both long and short positions. CTAs employ a range of trading strategies of which Trendfollowing is the most common.

History

Trading in commodities dates back to the mid-1800s when the Chicago Board of Trade was established. The managed futures industry became established in the 1980s when futures exchanges expanded to accommodate hedging in a growing range of financial markets.

The managed futures industry has grown over time and assets under management have increased as investor demand for liquid alternative strategies has grown.

Key Facts

Assets under management in managed futures is estimated by BarclayHedge to be $344bn as of the third quarter 2017 which means it accounts for approximately 9% of the total hedge fund industry. There are a wide range of managers in the industry, both in terms of trading style and size, ranging from managers with less than $10m to managers with over $10bn in assets.

Why Managed Futures



Uncorrelated returns

Managed futures has historically, over time, exhibited zero correlation to equities.

Diversification

Managed futures has provided better diversification than many other hedge fund strategies during major equity market declines.

Bi-directional

Managed futures strategies have the potential to profit from bull and bear moves subject to market conditions.

Multi-asset

CTAs typically trade a range of financial, commodity and foreign exchange markets and potentially benefit from trends in these markets.

Systematic

Most CTAs use systematic strategies which have been tested for validity on historical data.

Transparent

CTAs typically trade highly liquid markets* on regulated exchanges which can be marked-to-market continuously.

Portfolio Benefits

Academic and industry research has shown that adding managed futures to a traditional portfolio of stocks and bonds has resulted in better outcomes, over the long term, in terms of reduced drawdown and portfolio volatility and enhanced risk-adjusted return.


Risk Factors:

Investors should be aware that investing in managed futures is subject to market, counterparty and CTA risk. There is also a risk that managed futures may suffer losses at the same time that other asset classes such as equities are declining in which case an allocation to managed futures may not yield diversification benefits. Trading in futures is not suitable for all investors given its speculative nature and the high level of risk involved. Past results are not indicative of future results.

*Liquidation of contracts is subject to market conditions.