BENEFITS OF MANAGED FUTURES
"More efficient investment portfolios
can be created by diversifying among asset categories with
low to negative correlations.” -Dr.
Harry M. Markowitz, Nobel Prize Economist.
Seven Benefits of Managed
Potential for enhanced portfolio returns.
Liquid markets facilitate easy entering and exiting of market positions.
Transaction costs are lower then those for comparable cash market
Opportunity for reduced portfolio risk.
Ability to profit In any economic environment.
Opportunity to participate easily In global markets.
Managed Futures offer potential tax benefits versus stocks.
Potential for Enhanced Portfolio Returns
futures to a traditional portfolio improves overall Investment quality.
Graph exhibited in 2002 edition of “Portfolio Diversification
Opportunities”, published by CBOT.
Source: Barclay Trading Group
Ltd., Managed Futures: Barclay CTA Index; Bonds: Lehman Brothers
Long-Term Treasury Index; Stocks: S&P 500 Total Return Index
This study suggests
that the portfolio with the greatest returns and least volatility Included
Liquid Markets Facilitate Easy Entering and
Exiting of Market Positions
Large trading volume on regulated
exchanges allows speculators and hedgers to buy and sell large numbers of
minimizes any adverse
disruption of price in the
Transaction Costs Are Lower
The magic of leverage, and a competitive
marketplace, reduces the cost of trading futures versus cash market
Reduced Portfolio Volatility Risk
have demonstrated the potential for limiting
Risk reduction Is
possible because of the low to slightly negative correlation of managed futures
with stocks and bonds.
As this study shows,
there is very little relationship in the price movement (correlation) between
stocks, bonds and Managed Futures.
Ability to Profit in Any Economic Environment
positions in anticipation of a rising market.
positions in anticipation of a falling market.
profit in inflationary or deflationary periods.
CTAs can also use
strategies employing options on futures contracts that allow for profit
potential in flat or neutral markets.
Ease of Global Diversification
CTAs can diversify their portfolios by geography through at least 150
worldwide markets including stock Indices, financial instruments,
agricultural and tropical products, precious metals, currencies and energy
Global markets create ample opportunity for profit potential and risk
reduction through a broad array of non-correlated markets.
offer potential tax benefits versus stocks.
According to the
Tax Act of 1981, short-term profits in futures are treated as 60% long-term
(therefore being subject to a maximum tax of 15%), and
(normal taxable income). On the other hand, short-term trading profits in
stocks (stocks held less than one year) are treated as 100% short-term.*
favorable tax treatment for futures can translate for those in the upper tax
brackets, saving as much as 30% on taxes on short-term gains In futures
Alternative Investments such as Managed Futures are not suitable for all
investors. CFG recommends Managed Futures should only be used with
speculative capital, and that the investment not exceed 20% of investable
assets or 10% of a client's overall net worth.
*CFG recommends reviewing
any investment tax consideration with a qualified tax professional.
The risk of
trading futures, options and foreign exchange can be substantial. Past
performance is not necessarily indicative of future results. The factual
information of this report has been obtained from sources believed to be
reliable, but is not necessarily all inclusive and its accuracy can not be
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