Managed Futures are an investment within the alternative investment class. Managed futures involve trading commodities, currencies and the equity index markets. Managed Futures are a type of Hedge fund strategy allowing for investors to go long and short various global commodity and futures markets. Often investors used managed futures for diversification from their traditional investments or for hedging purposes against a specific market. Additionally, some investors are simply seeking returns beyond what traditional assets and strategies can provide and like the leverage managed futures can offer.
Managed futures are managed or traded by a Commodity Trading Advisor (CTA). CTAs are professional traders registered with the NFA to trade on behalf of investors. CTAs are regulated by the Commodity Futures Trading Commission, must register with the CFTC and are subjected to filing rigorous disclosure documents with the National Futures Association (NFA).
CTAs typically have a trading strategy, some may be long term traders, while others are midterm, short term or day traders. Larger program may use a combination of time frames for trading.
Most traders use a systematic approach employing mechanical strategies which indicate when to buy or sell a market. Other traders use a discretionary trading style which leaves them with the decision of when to buy or sell.
The CTA chooses the minimum capital required to invest in their program which can range from $5,000 to over $1,000,000.
All the details of the program can be found within the disclosure document provided by the CTA.
CTAs can trade client funds through a separately managed account or pooled together as a fund. The strategy and performance are generally the same but there are a few major differences between the two account types. See comparison chart below.
Managed futures started over 38 years ago. It wasn’t until 1985 that the asset class hit over $1 billion in assets under management. Investors both small and large began to take interest and add capital to the industry bringing the asset under management to over $367 billion today. Although it took several decades investors have come to realize there is a purpose for this in a portfolio.