Managed futures
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The allure of an alternative investment such as Managed Futures, lies in their ability to provide returns in conditions such as a strong economy, low inflation, or a bullish stock market.
All of the alternative investment solutions offered through MB Wealth and PFGBEST revolve around the trading of futures markets, also known as commodities or derivatives. Unlike other asset classes, where profits depend solely on price appreciation, opportunities and risk in futures exist in both rising and falling, or even range bound markets.
Investment management professionals have been using managed futures for more than 30 years. Institutional investors such as corporate and public pension funds, endowments and trusts, and banks have made managed futures part of well-diversified portfolio’s. The Chicago Board of Trade, in 2002 estimated that over $45 billion was under management by commodity trading advisors. According to the Barclay Group, that has risen to over $120 billion by 2005 and in the 1st quarter of 2010 the industry had over $210 billion.
The benefits of managed futures within a well-balanced portfolio include an opportunity for reduced portfolio volatility risk as well as the potential for enhanced portfolio returns. While there is a reduced volatility risk, there is still risk in loss of investments.
The main benefits of a Managed Futures Account:
- Returns independent of Stock Market Performance
- Reduction of risk via portfolio diversification
- Zero entry and exit fees for managed futures accounts
- Liquidity and transparency.
- Low correlation to traditional investments such as stocks, real-estate, and bonds
According to Dr. Harry M. Markowitz, the Nobel prize-winning economist and father of modern portfolio theory, portfolios with decreased volatility and increased performance can be created by diversifying among asset categories with low to negative correlation, such as stocks and commodities.
Subscribers to this theory believe an investment portfolio utilizing the futures markets through trading systems and managed futures stands to perform better, with lower overall risk, with the addition of alternative investments. Even though this risk might be lower when compared to other investment strategies, there is still a risk of loss.
Safety:
Investor funds are under the direct control of the individual and held in a segregated account at JP Morgan Chase Bank, under a PFGBEST customer funds account.
Liquidity:
The natural liquidity of futures markets allows investors the ability to liquidate their investment on very short notice in most cases. This means your investment has no lock out period and no minimum term for investing. While those investors who take a long term horizon often see better performance results, it is nice to know your investment can be liquididated within a single day. Liquidity in the U.S. treasury futures is one of the largest in the world, CME Group's financial futures trading volumes average in excess of one million contracts per day.
Transparency:
The question of “How is my investment doing?” is often very difficult to answer when investing in alternative investments due to a lack of transparency. Unlike other alternative investments in instruments like hedge funds or private equity deals where performance is reported monthly or quarterly; your managed futures investment is completely transparent, with the ability to view account statements and real time market evaluations of your account 24 hours a day through an online system.
Risk vs Reward:
A study published by the Chicago Mercantile Exchange concluded that portfolios with as much as 20% of assets in managed futures yielded up to 50% more with comparable risk than portfolios of stocks and bonds alone. The enclosed graph, "Impact of Incremental Additions of Managed Futures to the Traditional Portfolio," provided by the Chicago Board of Trade, shows that a traditional portfolio (55% stocks, 45% bonds, and 0% managed futures) presents an investor with the greatest risk and lowest returns. However, a portfolio comprising 45% stocks, 35% bonds, and 20% managed futures offers an investor the greatest returns and least amount of risk. Past performance is not indicative of future results.
** Past performance is not necessarily indicative of future results
Image provided by the Chicago Board of Trade
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Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.