Many investors understand very little about managed futures funds. Investors are advised that managed futures funds provide investment opportunities in asset classes not readily available to most investors. Investors rely on the fund managers as the experts at trading futures contracts. Managed Futures are often misunderstood and considered complex investments with fees, costs and commissions which investor should understand before investing.
Managed futures money managers, known as the trading manager are generally compensated by a flat management fee based on assets under management, in addition to an “incentive-based” fee based on profits. This “performance-based” fee is usually paid net of all fees designed to reflect net trading profits above the previously established account threshold balance. In addition to management and performance fees, a managed futures account has deducted expenses for transactions costs and commissions. The various managed futures investment strategies include trading futures contracts in:
- equity indexes;
- debt-related instruments;
- commodities; and
- currencies.
As a result of the development of global exchanges, investments in futures contracts are highly liquid investment vehicles which connect the world economies.
The primary rationale for investing a portion of an investor’s portfolio in managed futures funds is to generate portfolio returns with greater returns on a risk-adjusted basis. The supposed low to negative correlation of managed futures funds provides superior results for an investment portfolio during “down markets” which smooth portfolio returns over time. Professional money managers caution investors cannot “market-time” when to invest in managed futures funds making the recommended investment in managed futures funds a permanent part of a buy-hold asset allocation strategy.
A financial advisor can review your current holdings and determine the appropriate investment allocations in managed futures fund investments based on an investment policy statement designed to reach your True North.
