What are Managed Futures and CTAs?

When any of us at aiSource attend a social gathering, we many times get asked: “So what do you do for a living?”  It’s a question that makes us take a deep breath, as we gather our thoughts on how to tackle the question.  As most of may already know, managed futures, or even futures in general, are rarely known to the general public (or investor).  Futures are not stocks, or bonds, or annuities, or real estate, or anything remotely close to the investments that most people are familiar with.  So how do we explain to someone what managed futures are, and how we play a role in their investment process? We will be the first to tell you that it’s not easy. 

For anyone reading who is unfamiliar with what managed futures are, here’s an explanation of “what we do for a living” in layman’s terms:

“aiSource helps investors diversify their investment portfolio, that may currently contain equities, and fixed income, into various commodities/futures markets.  The way we do this is not by telling investors which commodities to buy or sell, but instead, advising them on which “funds” to invest with that will make the buying and selling decisions for the investor.  Without getting into too much detail, the technical name for these so called “funds” are Commodity Trading Advisors, and aiSource acts as the investor’s consultant when making recommendations on which Commodity Trading Advisors (or CTAs) to invest with.  Once we assist an investor with making an investment with a basket of CTAs, the CTAs then make all investment decisions on the clients’ behalf – picking and choosing which commodity/futures markets to invest in. aiSource then monitors all of our clients’ CTA investments on an on-going basis and makes suggestions if modifications are needed.”

Most individuals usually have a puzzled look on their face after hearing what we do, primarily because they are surprised that they have not heard of managed futures before, and have never known about the diversification value that they provide to an overall portfolio.  Many individuals have heard of futures before, but most people consider futures to be very, very risky. In fact, it’s true, trading futures on your own (unless you are a trained professional), is very, very risky – the team at aiSource would NEVER recommend it.  However, placing an investment with professional money managers, such as CTAs, is completely different than trading on your own.  All CTAs have audited performance records going back to their inception, which allows you to assess the risks associated with investing with them. Furthermore, commodity trading advisors are no different than your traditional financial advisor (with the only difference being that they focus only on commodities and futures instead of stocks and bonds) – their goal is to explore, discover, and execute ways that provide steady returns over a long period of time (past performance is not indicative of future results).

While no investment comes without inherent risks, the real value managed futures and commodity trading advisors add to an overall portfolio is non-correlated, diversification.  At aiSource, we believe that educating the general public about managed futures is our primary job, and therefore, we welcome the opportunity to educate every individual.