Managed Futures

Managed futures are alternative investment vehicles in which money managers (typically commodity trading advisors, or CTAs) invest in futures contracts for products ranging from agricultural and energy commodities to currency and other financial instruments on the behalf of their clients. Traded on more than 150 heavily regulated global futures markets, managed futures are highly liquid investments.

Managed futures investments involve the purchase and/or sale of futures contracts (legal agreements to buy or sell a physical commodity or financial product at a future date), but few participants in the futures market actually deliver or receive any goods. Instead, investors, or the CTAs with whom they hold accounts, buy and sell futures contracts on futures exchanges. Most of these trades are conducted through the clearing houses associated with each exchange. Because the contracts are technically both bought from and sold to the same party, namely, the clearing house, futures contracts are usually offset and thus effectively function as financial instruments with which to invest.

Some participants in the futures market (producers and manufactures, for example) eventually buy or sell the actual underlying asset and use futures contracts to hedge against the risks associated with fluctuating prices. Other investors, though, including those whose participation is directed by CTAs as part of a managed futures program, act as speculators who attempt to profit from market fluctuations. The resulting changes in the values of futures contracts account for the gains and losses experienced by investors in managed futures; as the prices of the underlying product rise and fall, investors’ accounts are credited and debited accordingly on a daily basis.

CTAs that operate managed futures investments employ a diverse set of strategies to attempt to predict—and ultimately help their clients profit from—the rising and declining values of futures contracts. Using proprietary trading systems and methods of analysis that are typically unique to each individual or firm to make predictions on the potential for profit, CTAs may choose to invest client funds in both long and short positions in various sectors of the futures market. Since they maintain individual accounts, investors in managed futures programs are able to observe both the trading activities conducted by the CTA on their behalf and the resulting daily gains or losses.