Diversifying Factors of Managed Futures
The long and short of managed futures trend-following strategies is discussed by AlphaSimplex’s Rob Sinnott.
- Managed futures strategies can take both long and short positions in global futures contracts – contracts that stipulate a commitment to buy or sell a particular asset in the future.
- Portfolio managers often run managed futures strategies systematically – using a pre-determined set of strategies designed to accomplish a particular investment goal
- While they are not without risk, (see important information below) some investors may want to consider managed futures strategies in a rising rate environment – one that has the potential to adversely affect traditional asset classes like stocks and bonds.
"Long" or "long position" is the purchase of a security such as a stock, commodity or currency with the expectation that the asset will rise in value. "Short" or "short position" is the sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.
Managed Futures use derivatives, primarily futures and forward contracts, which generally have implied leverage (a small amount of money used to make an investment of greater economic value). Because of this characteristic, managed futures strategies may magnify any gains or losses experienced by the markets they are exposed to. Managed futures are highly speculative and are not suitable for all investors.
Short exposures using derivatives may present various risks. If the value of the asset, asset class or index on which the portfolio holds short investment exposure increases, the portfolio will incur a loss. The potential risk of loss from a short exposure is theoretically unlimited, and there can be no assurance that securities necessary to cover a short position will be available for purchase.
The views and opinions expressed represent the subjective views of the contributors as of April 6, 2018. They are subject to change at any time based on market and other conditions. There can be no assurance that developments will transpire as forecasted. This material is provided for informational purposes only and should not be construed as investment advice.