Most individual and institutional investors understand the traditional asset classes. Stocks, bonds, real estate and cash are home to substantial sums of wealth around the globe and have been the backbone of portfolios for generations of investors. But, beyond these asset classes lie several alternative asset classes and strategies. The bulk of these alternative strategies are made up of private equity, infrastructure, and Hedge Funds. Managed Futures are a type of Hedge fund strategy. For investors seeking returns beyond traditional assets and strategies, they often look to alternative investments like Managed futures.

Commodity Trading Advisor (CTA)

Simply put the term Managed futures describes a strategy whereby a professional manager assembles a diversified portfolio of futures contracts. These professional managers are also known as Commodity Trading Advisors (CTAs). While a typical money manager or portfolio manager trades in a diversified portfolio of stocks or bonds or a combination of both, CTAs trade primarily futures contracts.

Some CTAs manage their clients' assets by employing proprietary trading systems. Some utilize systematic, computer-driven mechanical strategies and others employ discretionary methods. Managed futures programs generally take long or short positions in futures contracts, offered on exchanges worldwide. The strategies and approaches within managed futures are extremely varied but the one common, unifying characteristic is that these managers trade highly liquid, regulated, exchange-traded instruments and foreign exchange markets.

CTAs will often invest in a portfolio of futures contracts consisting of:

  • Fixed income futures, such as U.S. treasury notes or treasury bonds.
  • Stock index futures, such as S&P 500 futures or Russell 2000 futures
  • Commodity futures, such as soybean, crude oil, coffee, sugar and gold futures
  • Foreign currency futures, such as Euro FX, British pounds and yen

Ironically, the title Commodity Trading Advisor might lead you to think that CTAs trade solely commodity products like grains, metals or livestock. But nothing could be further from the truth as CTAs by and large trade financial futures. True, while there are some CTAs that might focus a managed futures portfolio on commodities, many CTAs usually emphasize financial futures, such as stock index futures and interest rate futures, because those markets are exceptionally liquid and transaction costs are minimal.

Regulated Exchanges

CTAs trade on many exchanges globally, including CME Group (the largest derivatives marketplace in the world), Eurex (located in Germany) and Atlanta-based Intercontinental Exchange (ICE).

CTAs are regulated by the Commodity Futures Trading Commission, must register with the CFTC and are subjected to filing rigorous disclosure documents with the National Futures Association (NFA).

FACTOID: The first publicly managed futures fund, Futures, Inc., was started in 1949 by Richard Donchian. He also developed the trend timing method of futures investing. Richard Donchian is considered to be the creator of the managed futures industry and is credited with developing a systematic approach to futures money management. His professional trading career was dedicated to advancing a more conservative approach to futures trading.

Managed Futures Growth

Over the past several decades, investors large and small have embraced managed futures. The growth in assets under management (AUM) has been impressive and AUM has recently topped $348 billion; up from virtually nothing 36 years ago.

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Did you know that CME Institute classes can fulfill CFA and GARP continuing education requirements? Every CME Institute course can be self-reported in your CFA online CE tracker and select classes can be used for GARP credits. See which of our classes qualify for GARP credits here.

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