A managed futures program is a type of alternative investment that provides everyday investors the opportunity to invest in the futures and options markets.
- Real Estate
- Hedge Funds
- Managed Futures
- Private Equity
- Credit Derivatives
The futures and options markets are based on futures and options contracts—legal agreements between buyers and sellers of commodities (including energy, metal and agricultural products) and financial instruments (foreign currency, government bonds and equity indexes, for example) for a future sale (or option for sale) of assets. Investors in managed futures do not necessarily agree to purchase or sell these commodities or currencies, but instead invest in the contracts themselves.
Managed futures investments are managed by professional investment individuals or management companies known as Commodity Trading Advisors (CTA). CTAs speculate on the price fluctuations of the various futures and options markets. CTAs are registered with and regulated and monitored by both the U.S. Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). As CTAs employ distinct investment methods, clients must decide which CTA will provide the best addition to their existing investment portfolio based on the firm’s performance and risk strategy.
Unlike the stock market, which offers investors partial ownership in a company and a proportional share of its gains and losses, an investment in managed futures yields returns (or losses) based on the investment performance of a CTA. Furthermore, while a managed futures investment involves exchange-traded futures markets, the investment itself is not traded on exchange.
Another distinguishing characteristic of a managed futures program is that it is not a pooled investment vehicle like a mutual fund, which utilizes capital from a group of investors, although many mutual funds involve investments in the futures and options markets. Instead, a managed futures investment operates under a separately managed account (SMA) structure; each client’s portfolio is managed on an individual basis as a single account, allowing for increased liquidity and transparency.