Some investors consider managed futures to be a potential strategy for diversification and risk management. One of the potential benefits of a managed futures strategy is the use of professional trading advisors who invest across a broad range of global markets, including commodities, currencies, interest rates, and equity indices, through futures contracts.

This flexibility enables managed futures to adapt to changing market conditions, potentially delivering returns in both rising and falling markets, although such outcomes are not guaranteed. By complementing traditional investments like stocks and bonds, they may enhance diversification and potentially reduce portfolio volatility, and provide access to opportunities beyond conventional asset classes.

Below, we explore some of the potential benefits of incorporating managed futures into an investment strategy.

1. Potential to Lower Overall Portfolio Risk

One of the core benefits of managed futures is their ability to reduce overall portfolio volatility. Traditional portfolios concentrated in equities and fixed income can be vulnerable to economic downturns. Managed futures may perform differently from conventional markets, and in some cases, could help offset losses during market downturns.

They may act as a hedge, potentially stabilize returns, and protect capital during periods of market stress.

2. Broad Diversification Opportunities

Some of the potential benefits of managed futures include access to over 150 global markets when strategies are well-managed. These may include:

• Commodities (e.g., gold, grains, energy)

• Currencies (major and emerging markets)

• Interest rates

• Equity indices

This broad market exposure may allow investors to diversify beyond traditional assets, which can help reduce concentration risk. Many managed futures funds also employ multiple trading advisors with distinct styles, further enhancing diversification within the allocation itself.

3. Opportunity to Enhance Portfolio Returns

While risk management is a primary focus, one of the benefits of managed futures also presents opportunities for return enhancement. Unlike traditional long-only strategies, managed futures can take both long and short positions, allowing them to profit in rising or falling markets.

Their global reach enables them to capture trends and opportunities that a geographically limited portfolio might miss.

4. Potential Opportunity to Profit in a Variety of Economic Environments

Another significant benefit of managed futures is their potential to generate profits in diverse economic environments. Unlike traditional investments that may be heavily influenced by economic cycles, managed futures strategies are designed to adapt to changing market conditions. Whether the economy is experiencing inflation, deflation, or stagnation, managed futures can adjust their positions to take advantage of these shifts. This adaptability is particularly valuable in times of economic uncertainty or market volatility, where traditional investment strategies might struggle to perform.

Read also: Managed Futures 101: Using Futures to Navigate Markets

Conclusion: A Strategic Addition to Any Portfolio

Managed futures bring distinct characteristics that benefit a portfolio, including access to global markets, lower correlation to traditional assets, adaptability in diverse conditions, and the potential for more substantial long-term returns. Although all investments carry risk, a well-executed managed futures strategy may help investors manage risk and explore opportunities, making them a valuable complement to traditional holdings.

For investors seeking to optimize their portfolios with a sophisticated and adaptable investment strategy, managed futures represent a compelling option.

DISCLAIMER: Trading commodity futures and options products presents a high degree of risk and may not be suitable for all investors. Losses in excess of your initial investment may occur. Past performance is not necessarily indicative of future results.