Why Managed Futures?
Managed Futures in a Portfolio
As an investor, you recognize the need to evaluate managed futures in context; you want to know not only the stand-alone characteristics of managed futures, but also the impact that managed futures can have on your total portfolio. The following graphs explore key attributes of managed futures in smoothing overall portfolio performance.
Historical Correlation of Various Asset Classes to Managed Futures
January 2000 - December 2009
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Important Consideration: Non-correlation is over a long period (i.e., 10 years). In addition, other asset classes have different investment objectives, costs and expenses, liquidity profiles, safety, guarantees/insurance, volatility, tax advantages/disadvantages. Investors are not able to invest directly in these indices. The performance of the indices does not represent the performance of The Frontier Fund.
Currency: US Dollar Index. Source: CQG, Inc.
Equities: S&P 500 Total Return Index. Source: PerTrac Financial Solutions.
International Equities: MSCI EAFE - Price. Source: PerTrac Financial Solutions.
Equity Long/Short: Credit Suisse/Tremont Blue Chip Index Equity Long/Short. Source: PerTrac Financial Solutions.
Cash: 3-Month T-Bill Rate. Source: federalreserve.gov.
REITs: DJ Composite REIT Total Return Index. Source: CQG, Inc.
Bonds: Barclays Capital U.S. Aggregate Bond Index. Source: PerTrac Financial Solutions.
Commodities: RJ CRB Total Return Index. Source: jefferies.com.
Hedge Funds: Credit Suisse/Tremont Blue Chip Hedge Fund Index. Source: PerTrac Financial Solutions.
Managed Futures: Barclay BTOP 50 Index. Source: PerTrac Financial Solutions.
Correlation is a numerical measure of the similarity (or difference) in the performance of two investments. As the graph to the left indicates, managed futures were the only major asset class with a negative correlation to equities (-0.25) during the 10-year period illustrated. This feature suggests that managed futures have a significantly different return pattern from that of equities.
Managed Futures Performance and Risk Measurements versus Other Alternative Asset Classes*
January 2000 - December 2009
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Important Consideration: Non-correlation is over a long period (i.e., 10 years). In addition, other asset classes have different investment objectives, costs and expenses, liquidity profiles, safety, guarantees/insurance, volatility, tax advantages/disadvantages. Investors are not able to invest directly in these indices. The performance of the indices does not represent the performance of The Frontier Fund.
Managed Futures: CASAM CISDM CTA Asset Weighted Index. Source: PerTrac Financial Solutions.
Hedge Funds: Credit Suisse/Tremont Blue Chip Hedge Fund Index. Source: PerTrac Financial Solutions.
REITs: DJ Composite REIT Total Return Index. Source: CQG, Inc.
Commodities: RJ CRB Total Return Index. Source: jefferies.com.
Bonds: Barclays Capital U.S. Aggregate Bond Index. Source: PerTrac Financial Solutions.
Equities: S&P 500 Total Return Index. Source: PerTrac Financial Solutions.
A drawdown is a period in which an investment moves from a peak to a subsequent low. With a relatively low maximum drawdown of 8%, managed futures have exhibited less down-side risk over the past decade than alternative asset classes with similar return profiles.* Standard deviation is a measurement of the volatility of an investment; the more volatile an investment, the higher its standard deviation. As the graph reveals, managed futures have relatively low standard deviation (8%) in comparison to other asset classes.
Integrating managed futures into a stock and bond portfolio can result in a higher return for a given level of risk, as illustrated by the efficient frontier.
An investor with a 50% allocation each to stocks and bonds experiences less performance and more volatility than an investor with allocations of 10% managed futures/45% stocks/45% bonds.
* Maximum drawdown is the measure of risk (also known as Worst Historical Loss) that illustrates the largest peak-to-valley decline, based on simulated monthly rates of return, during a given time period. The time period of analysis is from January 2000 through December 2009, unless otherwise noted. The maximum drawdown depicted here is not the maximum loss that can occur in an individual’s managed account. There is no guarantee that managed futures or the fund will meet its intended objective; accordingly, investors could lose a substantial portion, or even all, of their investment.
Efficient Frontier Theory of Portfolio Diversification: Hypothetical Return for a Given Level of Risk**
January 1980 – December 2009
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
** This diagram models hypothetical portfolios of different compositions, based on actual index performance over the periods shown. Investors are not able to invest directly in these indices. The performance of the indices does not represent the performance of The Frontier Fund.
Managed Futures: CASAM CISDM CTA Asset Weighted Index. Source: PerTrac Financial Solutions.
Equities: S&P 500 Total Return Index. Source: PerTrac Financial Solutions.
Bonds: Barclays Capital U.S. Aggregate Bond Index. Source: PerTrac Financial Solutions.