Non-correlation to Stocks and Bonds

A diversified managed futures program potential for profit or loss does not directly correlate to movements in traditional investments such as stocks and bonds.

Managed futures are investment vehicles that, when blended into a traditional portfolio, can achieve diversification, reduce portfolio volatility, enhance overall return potential, and provide protection during extreme or down equity market cycles. The chart to the right illustrates an optimal portfolio mix, also known as an “efficient frontier.”

Managed Futures - Optimal Portfolio Mix

Below we can actually see how different investment allocations affect some key numbers, such as average monthly return, compounded annual return, monthly standard deviation, Sharpe ratio, and maximum drawdown. Notice that some of the figures below are associated with the efficient frontier presented above.

This historically based model demonstrates that adding managed futures to a blended portfolio of stocks and bonds offers benefits in performance and a reduction in volatility.

Managed Futures

In 2008, the Barclay CTA Index returned 14%, while long-only investments and hedge funds greatly suffered from a contracting world economy and bearish fundamentals.

Managed Futures - Monthly Returns

The year 2008 was not an anomaly, though—managed futures have exhibited similar behavior during other periods of duress in the global equity market. The broad spectrum of asset classes and liquid markets involved in managed futures investments allow CTAs to remain nimble in various market conditions. The following charts show the correlations of CTA strategies with world stocks and their ability to take advantage of various down-market cycles.

Managed Futures - compared to world stocks

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