Can Managed Futures Enhance Your Portfolio?
Can Managed Futures Enhance Your Portfolio?
Managed futures are an often misunderstood asset class thought to be exclusively a part of the investment arsenal of only the highest net worth individuals. In reality though managed futures are a tool accessible to both retail and institutional investors alike that can potentially be used to lower portfolio risk whilst actually improving overall returns.
So then what exactly are managed futures? Quite simply the term managed futures refers to an asset class in which professional manager’s trade futures contracts on behalf of their clients with the intention of generating a profit. The underlying assets for these futures contacts can be anything from the price of grain to gold or even stock market indices.
This broad underlying asset exposure of managed futures accounts means their correlation with the price movements of traditional asset classes such as stocks, bonds and property is relatively low. Therefore in line with modern portfolio theory adding an allocation of managed futures to a balanced portfolio should see a reduction in overall portfolio risk. Not only this but according to CME group managed futures have historically outperformed equities since 1980 which means portfolio performance could actually increase as a result of managed futures exposure.
However the benefits of managed futures go far beyond offering positive risk adjusted return; they also provide a vital opportunity to not only hedge against but potentially profit from poor market conditions. The capacity of managed futures to do this stems from the ability of the manager to either take short or long positions on futures contracts with any underlying asset. For example Managed futures are able to thrive in periods of high inflation by taking long positions on commodities which generally see price appreciation under such conditions. Similarly in a bear market the fund manager can take short positions on equity based futures contracts in order to profit from declining prices. This capacity of managed futures to accommodate itself for various market conditions is truly invaluable in the current high volatility investment climate.
Clearly then managed futures funds have a number of means by which they can potentially enhance any investor’s portfolio. As such it would appear prudent for investors to give serious consideration to allocating some part of their portfolio to the managed futures asset class.
For more information on how you could use managed futures as part of your portfolio contact HarbourSide Capital at info@hscapital.com.au or call +61 2 9432 7850.
HarbourSide Capital is an Australian provider of Managed Discretionary Accounts.
HarbourSide Capital Pty Ltd (ACN: 166 765 537) is a Corporate Authorised Representative (CAR No. 448907) of HLK Group Pty Ltd (ACN: 161 284 500) which holds an Australian Financial Services Licence (AFSL no. 435746). Any information or advice contained on this material is general in nature and has been prepared without taking into account your objectives, financial situation or needs.
Source: CME Group
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