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Why Managed Futures

 

Managed futures are investment vehicles run by professional money managers, known as Commodity Trading Advisors (CTAs), who manage client assets using global futures markets. Managed futures are an alternative investment in their own right, separate from traditional investments such as stocks and bonds. There are over 1,500 active CTAs currently registered with and regulated by the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC).

Benefits of Managed Futures

Diversification

As global stock and bond markets have become more interdependent recently it has become increasingly difficult for investors to find investments that do not move in parallel with one another, particularly in times of market stress. 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.

60 / 40 Taxation

Gains and losses in futures and futures options are taxed at a 60% long-term rate and 40% short-term rate no matter what the holding period. It could be one hour, one day or one year; the 60 / 40 formula applies across the board. This treatment currently applies to both futures accounts managed by Commodity Trading Advisors (CTAs) as well as those held by hedgers or individual speculators.

Negative correlation with traditional assets

A portfolio that includes managed futures, historically, would have provided higher returns and lower risk than one without managed futures at all. This is supported by various academic research studies, beginning with the landmark study of Dr. John Lintner of Harvard University, in which he wrote that “the combined portfolios of stocks (or stocks and bonds) after including judicious investments in leveraged managed futures accounts show less risk at various possible levels of expected return than portfolios of stocks (or stocks and bonds) alone.

Ablity to profit in rising and falling markets

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. 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 Trading advisors can even use sophisticated strategies that use a mix of futures and options on futures contracts that allow for profit potential in flat or neutral markets.