Portfolio Building
Spread trading: Capitalizing on market relationships
Among the many styles of trading used in managed futures, one of the most unique is spread trading. In most traditional investments, you buy what you think will go up and sell what you think will go down. But in spread trading, you simultaneously buy and sell two closely related futures contracts — such as buying corn for May 2011 delivery and selling corn for December 2011 delivery — with the objective of profiting from the price changes between the two delivery dates.
Mutual funds open managed futures to new investors
Managed futures have experienced explosive growth in the last two decades, increasing to $247 billion under management from only $11 billion in 1990. The primary driver of growth has been investor recognition of managed futures portfolio diversification value and its non-correlation to traditional asset categories such as stocks and bonds (for more details see “30 years of managed futures” from the May 2010 issue of Managed Futures Today).
Constructing a managed futures portfolio
Once you have decided to add managed futures to your investment portfolio, the next step is to build a sub-portfolio of CTA (commodity trading advisor) programs. There are more than 1,000 CTA programs available, and selecting the right mix of CTAs is necessary to achieve your investment objectives. At this stage it is very important to work with an experienced managed futures portfolio advisor.
Managed futures mutual funds expand investment options
Managed futures have been around for more than a generation, but developments in recent years have given more choices to investors and advisors seeking exposure to this segment of the financial marketplace.
The reasons for doing so are now well-known: Various studies have shown managed futures are uncorrelated to the equity market over time and have the ability to smooth and enhance returns in a diversified investment portfolio.
Managed futures: Pooled funds vs. individual accounts
When investing in managed futures, advisors rightly spend much of their time researching different programs and trading strategies. Another part of the process is considering how the funds will be handled and traded. In the managed futures realm, there are essentially two ways customer funds can be invested — in a individually managed account or in a “commingled” fund or pool.
