Managed futures strategies are alternative investment strategies that use futures contracts to generate returns. Commodity futures are agreements to buy or sell an asset at a predetermined price on a future date. They play an important role in the global economy. Managed futures strategies can be used to invest in a variety of asset classes, including commodities, currencies, interest rates, and equity indexes.
Types of Managed Futures Strategies
The most common managed futures strategies include:
Trend-following strategies. Trend-following strategies attempt to identify and follow trends in the price of assets. These strategies often use technical analysis to identify trends, and they may take long or short positions in futures contracts depending on the direction of the trend.
Mean-reversion strategies. Mean-reversion strategies attempt to profit from the tendency of asset prices to revert to their long-term average. These strategies often use statistical analysis to identify mean-reversion opportunities, and they may take long or short positions in futures contracts depending on whether the asset price is above or below its long-term average.
Discretionary strategies. These strategies may use a variety of factors, including technical analysis, fundamental analysis, and market sentiment, to make investment decisions.
Benefits of Managed Futures
Managed futures strategies can offer a number of benefits to investors, including:
Diversification. Managed futures strategies can provide diversification benefits by investing in a variety of asset classes. This can help to reduce risk and improve the overall performance of an investment portfolio.
Potential for higher returns. Managed futures strategies can take advantage of trends and market inefficiencies, so they have the potential to generate higher returns than traditional investments, such as stocks and bonds.
Liquidity. This can be important for investors who need to access their money quickly.
Access to professional managers. Many investors prefer to invest with professional managers rather than manage their portfolio on a daily basis.
Risks
High volatility. Prices can fluctuate significantly, and leverage will exacerbate the impact. This can be a risk for investors who are not comfortable with volatility.
High fees. Managed futures strategies often have high fees, which can eat into investment returns.
Lack of transparency. Disclosure requirements vary depending on the manager. This can be a risk for investors who want to know where their money is going.
Overall, managed futures strategies can be a good option for investors who are looking for diversification, potential for higher returns, and liquidity. However, investors should be aware of the risks associated with these strategies before investing.
Managed futures strategies can be traded in a variety of ways, including through mutual funds, exchange-traded funds, and separately managed accounts.
If you are considering investing in managed futures strategies, it is important to do your research and understand the risks involved. You should also work with a qualified financial advisor to help you choose the right strategy for your individual needs. Click here to learn about other important asset classes and fund structures.