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The Benefits of Managed Futures 2004 Update

Various managed futures return (e.g., CTAs) opportunities stem from the expanded universe of securities available to trade and the strategies that can be employed. Funds can access both financial and non-financial (commodity) markets and can easily take long or short futures and option positions in any of these markets. Expanding the set of investment opportunities results in providing diversification benefits to a portfolio that cannot be replicated through traditional stock and bond investment strategies. In this annual update, the return and risk characteristics of various managed futures strategies are reviewed as well as the risk and return impacts of adding CTAs to traditional stock and bond portfolios. In addition, results are presented on the impact of market factors such as changes in credit spreads or market volatility on CTA returns. Results show that traditional market factors may have little correlation with CTA returns, however, passive systematic models of CTA performance can be created. Therefore, one can think of CTA returns as a combination of manager skill and an underlying return to the CTA strategy or investment style itself. Lastly, the stability of the return and risk parameters over time are analyzed as well as the relative performance of investable CTA indices and traditional CTA fund of fund products.