If you doubt that managed futures are… well… the future, then cast that doubt aside.
In the third quarter of 2024, the managed futures industry had an impressive $340 billion assets under management (AUM).
Not bad, when you consider that back in 1980 managed futures only accounted for $10 million AUM.
The main reason managed futures have grown in popularity is the security and stability they bring through portfolio diversification.
By investing in asset classes that don’t correlate with traditional markets like stocks and bonds, managed futures accounts often do well during adverse market conditions. When managed right, futures investing is a reliable way to reach alpha, achieving returns that outperform the market.
But what, exactly, are managed futures? And how can you invest in them in a way that mitigates risk at the same time as maximising returns? Is that even possible (spoiler alert – yes, it is!)?
What Are Managed Futures In Investing?
In simple terms, managed futures are investment accounts overseen by Managed Futures Investment Managers or brokers who predict the future prices of things like oil, gold, or even money itself, then invest according to whether prices are likely to go up or down.
It’s like having an “insurance policy” when turbulent times hit traditional markets. For example, if US equities catch a cold, managed futures act as a buffer, potentially gaining value and offsetting losses.
Holding a diverse portfolio of futures contracts that are uncorrelated with traditional asset classes, means you’re more likely to make a profit, no matter what the market is doing.
The futures industry has snowballed in recent years and now has assets under management (AUM) worth more than $300 billion. Managed futures are no longer the preserve of ultra-wealthy investors or institutional funds. It’s now open to smaller investors, typically those with $250k and upwards.
Managed futures cover the following asset classes.
Commodities: Includes energy sources like oil and natural gas, metals such as gold, silver, and copper, and agricultural products like corn, soybeans, and coffee.
Currencies: Managed futures may involve trading in major global currencies, including but not limited to the US dollar, euro, Japanese yen, and British pound.
Interest Rates: This might involve government bonds futures and other interest-bearing securities.
Stock Indices: Covers stock index futures, such as those on the S&P 500, Dow Jones Industrial Average, and NASDAQ.
Other Financials: Includes futures on financial instruments and derivatives traded on regulated exchanges.
Many investors see managed futures as a sensible alternative to traditional hedge funds. Hedge funds can provide strong returns, but are more complex to manage and can be more volatile. Managed futures, on the other hand, offer a more clear and predictable way to diversify that’s just as effective, if not more.
Characteristics of Managed Futures
High Liquidity
The extra liquidity of managed futures is a big benefit. It means you can move your money in and out without causing large price shifts. This gives you more flexibility and peace of mind than traditional investments. Investment managers and brokers use a variety of trading strategies to tap into this liquidity, as we’ll discuss in a moment.
Low Correlation & Diverse Portfolios
Managed futures have a low correlation with traditional asset classes, which leads to a more diverse portfolio. It includes assets that react differently to economic events or market shifts, such as commodities, currencies, and interest rates, which means greater stability or even profit in times when traditional markets are struggling.
Diversifying your portfolio means spreading investments across different sectors, as well as diverse geographical regions and economic drivers.
Managed By Professionals
Account managers oversee most managed futures accounts, typically investment managers, mutual funds, or ETFs (Exchange-Traded Funds).
Investment managers are specialist professionals who must be registered and fully understand futures trading rules and regulations. If you’re looking to invest in managed futures, try to find account managers with a deep understanding of the different asset classes and comply with regulations.
Look into their track record and understand their typical trading strategies. Remember to review their fee structure to avoid any nasty surprises later on. You should also ensure that they know how to use various tools to get the best possible results, such as AI-driven predictive platforms.
Secure A Bright Future - Invest In Managed Futures
Managed futures have grown from a niche market to a major financial force in recent years with more than $300 billion in assets under management. This is due to their stability, liquidity, and the potential for alpha returns in diverse market conditions.
Investing in managed futures lets you tap into a range of asset classes, from commodities and currencies to interest rates and indices managed by regulated professionals who use cutting-edge predictive tools.