Investor Priorities

In a recent survey, we asked professional investors their attitudes towards hedge funds and managed futures. Many advisors confirm there is an overwhelming choice in the multi asset space and given the general consensus that market volatility will remain through out 2019, allocators and advisers are looking to liquid alternative funds to diversify from broad multi strategy funds which are generally long risk.

Some allocators still favour Fund of Funds for their alternative strategies, however there is a general view that direct investment into CTA’s is being used as a counterbalance for equity risk. There is a strong pattern of moving away from multi strategy fund of funds, as one allocator described “the performance was not sufficient and correlation simply too high to equity risks elsewhere”. Allocation has increased to strategy specific funds such as credit, global macro and CTA’s.

Investors are already changing their priorities, and, in particular, are developing a strong focus on limiting portfolio drawdown/losses. A recent survey of high net worth investors in Europe and

Asia, found that downside protection was their highest priority in 2019, with 73 percent of investors citing it as a “very” or “extremely” relevant investment objective. This is a very typical trend after witnessing such a long run up in traditional market performance and reaching the final stages of a cycle.

For more than 30 years, managed futures or CTAs have helped investor returns as well as see their asset class grow significantly. As investors increasingly seek alternatives to such traditional assets as stocks, bonds and real estate, investment in the managed futures industry is experiencing steady interest with the likely backdrop of traditional market volatility.

Why Managed Futures?

Growth in the managed futures has been mainly been amongst the professional investor community. Why don’t more people invest in this growing industry? Many investors are simply unaware of the opportunity managed futures programs present, while others believe they lack the capital necessary for investment. (Although managed futures programs require substantial investment, minimum investment amounts are not as high as many investors think.)

The industry continues to grow as more investors learn about the benefits of including managed futures in a well-balanced portfolio.

Benefits of Managed Futures

Broad Diversification Opportunities

Offering highly diverse investment opportunities—in terms of both geography and product—managed futures are a natural choice for investment portfolio diversification. Through managed futures programs, CTAs provide investors flexible investment options that are traded on over 150 global financial and commodity markets. Managed futures investment portfolios may include agricultural commodities, energy products, metals, interest rates, equities and foreign and domestic currencies.

Reduced Overall Portfolio Risk 

Because of this inherent diversity, managed futures offer the potential for lower overall volatility in a balanced investment portfolio. Moreover, investment in diverse global futures markets complements a portfolio’s other traditional asset classes, with which managed futures have virtually no long-term correlation; managed futures have the ability to yield profits regardless of the movement of stocks and other investment vehicles. It is important to note, however, that no managed futures program is without risk and any investment may be subject to substantial loss.

Enhanced Overall Portfolio Returns

Managed futures programs’ diversity and potential for reduced investment volatility contributes to their capacity to boost overall portfolio gains. A diverse, well-balanced investment portfolio can offer more effective performance. Adding managed futures to a portfolio of traditional investments provides the potential for higher returns with lower risk. Since each unique program is based on a particular CTA’s investment strategy and past performance is not indicative of future results, therefore, managed futures offer no guarantee of profit.

Profit Potential During All Economic Environments

Managed futures investments can generate profit in almost all market conditions. Managed futures give investors the ability to go long—buy futures positions—in order to profit from rising markets, go short (by selling positions) in anticipation of falling prices or take a more conservative approach with a spread that combines long and short positions. Managed futures have historically performed well in market conditions that are adverse for traditional asset classes like stocks and bonds. But as past performance is not indicative of future results, managed futures investments may not necessarily follow this trend.

Transparency and Liquidity

This tight regulation results in maximum transparency for investors. CTAs must provide all clients with daily access to account statements, details of all positions and complete disclosure information. And because managed futures accounts are settled on a daily basis, investors have the ability to monitor and track daily account activities. Since managed futures accounts are credited and debited daily, investments are generally highly liquid; investors maintain tight control of accounts and may withdraw or transfer funds as necessary to further reduce risk.

(The author of this article is Marcus Queree, Partner & Director of FundStream. Any information herein is only expressions and opinions. This document does not constitute an offer, an invitation to offer, or a recommendation to enter into any transaction, nor does it constitute investment advice. The information contained herein is confidential and reproduction of any part of this material is prohibited. If you are in any doubt as to the suitability of an investment you should always consult your financial adviser. FundStream does not receive any form of compensation for circulation of such material.)