The Benefits to Investing in Managed Futures

The Benefits to Investing in Managed Futures If you’ve considered investing in commodity futures to diversify your portfolio or would like to take advantage of rising/falling prices of a certain commodity but didn’t feel you have the expertise to do it yourself, then a managed futures program may be perfect for you.

A managed futures program is very similar to a mutual fund in that you simply invest funds into the program and all of the trading and account management is handled for you by a registered CTA (Commodity Trading Advisor). A CTA is an experienced commodity futures trading professional who will handle all aspects of the account; from market strategies to risk management. As a client of a managed futures program, you will have full transparency as to the status of your account at all times. You will be able to view your account balances and current trade positions in real time.

In return for his services, a CTA normally collects a management fee and an incentive fee. Management fees are typically 1.8% to 2.5% of the total account value and are collected quarterly. Incentive fees typically range from 20% to 30% and are only payable on new, net profits achieved in the managed account program. If no new profits are made in a given month, no incentive fee is collected by the CTA thus giving him “incentive” to manage the account profitably.

Many financial advisors will recommend a managed futures program to their clients looking to diversify their portfolio. A typical asset allocation of 10% to 20% in managed futures is recommended to achieve a well-balanced portfolio. Over the past 30 years, the amount of funds allocated to managed futures investments has skyrocketed to over $130 Billion. The popularity of managed futures investments seems to be rapidly increasing as more and more investors become aware of the benefits associated with them.

Yes, there is a reason for the growing popularity of investing in commodity futures. For the first time in over 60 years, the stock market has had a 3 year decline in returns, and the market has not achieved its highs set in 1999. As the result of the recent poor economic conditions, corporations continue to fail striking fear in the markets, and hence, increasing the volatility of the equities markets.

Investing in commodity futures is generally uncorrelated with the equity markets. Many professionals in the financial industry believe this makes investing in commodity futures an effective diversification strategy.

Insignia Futures & Options has the experience and expertise to assist you in a well-rounded investment portfolio. Contact our offices today to discuss the benefits of investing in commodity futures.

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