INTRODUCTION TO MANAGED FUTURES
Through Mutual Funds, IRAs, Pension Plans, and through their own
self directed trading, individuals are now investing more in the U.S
stock and bond markets than they ever have before. While professionals
know that they need to diversify, individuals often fail to do so.
Though relatively new Commodity Pools are to Managed Futures what
mutual funds were to stocks 20 years ago.
Studies and experience have shown that a well diversified portfolio can
lower risks while increasing returns. But besides investing in stocks of
different industries there have been little alternatives to diversification.
Most alternatives – bonds, emerging markets, gold, real estate – either
have poor returns (given their risk-reward ratio), correlate too closely
with stocks, or are inaccessible to small investors. Managed Commodity
Futures are an attractive alternative offering to even small investors,
a broad array of asset classes. Futures have grown to encompass a
wide range of market such as stock indexes, debt instruments,
currencies, and options as well as conventional commodities
(energy, grains, meats and metals).
WHY INVEST IN A COMMODITY POOL?
A Managed Commodity Futures portfolio can give an investor access
to all these markets and help diversify their portfolio with assets that
are not correlated to stocks and bonds. To trade a portfolio of
commodities effectively one needs to spend most of the day watching
the commodity markets. Unfortunately most people do not have this
time available. By investing in a commodity pool an investor can
benefit from a professional attending to the markets on their behalf.
The benefits of a Commodity Pool include:
Commodities Pools gives an investor limited liability - in an individual
commodity account an investor may lose more than he invests. In
a commodity pool the pool operator is responsible for any excess losses.
By combining funds with those of many other investors you not only
reduce your risk of loss but dramatically increase your chances of
success. Most Individuals who trade commodities lose. Even though
the best portfolio managers will have periods of drawdowns, a
well-funded account can reduce the effect of these losing periods.
Whereas as a small private account could be completely lost and
never get to benefit from the inevitable winning periods merely
because it is undercapitalized. Thus Commodity Pools allows smaller
investors to benefit from the same leverage that large traders have.
Commodity Pool participants benefit from having a professional manager
trading their capital. Professional Management brings market experience
and expertise and an individual (or group) who's only task is to earn you
a return on your investment. This frees up the average investor from hours
and hours of "market-watching" and makes years of market experience
unnecessary.
WHO USES MANAGED FUTURES?
Managed futures are used by a variety of investors, such as pension funds,
insurance companies, college endowments, mutual funds, and banks to
diversify their portfolios.
Managed Future accounts trade commodity and options in many different
areas ranging from the S&P 500 to live cattle & corn. Because managed
future accounts trade such a broad mix of asset types, not limited to stocks
and bonds, their returns are unrelated (uncorrelated with) to returns in
equities. Lack of correlation among portfolio asset classes is the key to
holding a diversified portfolio.
PORTFOLIO DIVERSIFICATION
Unlike stocks, Managed Futures have the potential to perform as well in
inflationary periods as they can deflationary periods. Because they have
the flexibility to profit from rising markets as easily as they can profit
from declining markets, their measure of diversification is unlimited.
Managed Futures also provides portfolio diversification by allowing access
to markets unavailable to traditional investment portfolios, such as:
Foreign Currencies (Japanese Yen, German Mark)
CAN MANAGED FUTURES BE USED IN CONJUNCTION
WITH A TRADITIONAL INVESTMENT PORTFOLIIO, INVESTING IN
STOCKS AND BONDS?
Today, more and more traditional investors are using Professionally Managed
Futures to reduce risk and increase performance in their stock and bond
portfolios. Large pension funds, major corporations, and savvy investors
have been using professional management for years. Now, with one of the
most spectacular stock market rallies in history, investors are rightfully
concerned about protecting their profits. What's an investor to do?
Liquidate, move to cash and possibly miss out on more gains, or ride the
inevitable "storm" of a major correction and possibly suffer a severe setback?
For many informed investors, a traditional portfolio's best friend is
professional management in futures. Balancing a stock and bond
portfolio with professionally managed futures doesn't necessitate
liquidating stocks.
WHAT HAS FUELED THE GROWTH IN MANAGED FUTURES
AND COMMODITY POOLS?
Growth in Managed Futures has been fueled by sophisticated investors
seeking more effective methods of diversification. A number of studies
indicate a portfolio including managed futures may yield returns appreciably
higher and more stable than portfolios including only socks and bonds.
Studies conclude this can be achieved without additional risk. The
tremendous expansion of futures to include stock indices, financial
futures and currencies as well as more conventional commodities has
created new categories of profit opportunities. When you reflect back
on the short 15 years since stock indices were first listed, the current
growth in Managed Futures makes a lot of sense.
More products = more opportunities. The global nature of today's futures m
arkets also has expanded the scope of investment possibilities.
WHY COMMODITY POOLS
Many investors new to futures and options are being attracted to this area
through Commodity Pools. Commodity pools represent a good alternative to
direct participation in the futures markets, offering limited liability,
diversification of risk and professional management. Commodity Pools
have proven to be considerably more profitable on the average
than accounts that individuals managed on their own.
HOW CAN I BENEFIT FROM MANAGED FUTURES?
Stock Indices, Interest Rates
Grains, Seed, Livestock & Meats (Soybeans, Hogs, Coffee)
Energy (Crude oil, Natural Gas)
Metals (Gold, Copper)
As part of a diversified portfolio, managed futures can reduce risk, enhance returns and enhance performance in adverse economic conditions and market environments. Managed Futures programs can exploit price trends regardless of the direction of the trend. In rising markets, they can buy futures, in declining markets they can sell futures. In inflationary times they buy hard assets (like Gold & Grains) and sell bond and stock index futures.
HOW MUCH SHOULD I INVEST IN LINK COMMODITY POOL?
As with any investment asset class, commodity pools require an individualized approach to identify the correct allocation of funds. Your allocation should reflect your age, investment objectives, and your other assets. Ultimately you are the best judge of how much money to invest in Commodity Pools.
All Commodity Pools are offered through a prospectus called the Disclosure Document. Like any investment material, Disclosure Documents must be scrutinized thoroughly. In so doing, you will become mindful that pools have substantial risks and are not suitable for all investors.
You must receive a copy of the Disclosure Document, read it carefully and acknowledge having done so before you can invest in a pool. Make Sure you understand all risks and fees before you send funds to any pool.