Managed Futures Reach Retail Portfolios

06/10/2012 ETF Radar Newsdesk Week 24 2012

(NEW YORK CITY) Managed futures, which a few short years ago were available only in hedge fund and institutional products, are increasingly finding their way into retail investors’ portfolios.

Whether through passive strategies that use a managed futures index or through the active management of a commodity trading adviser (CTA), managed futures are increasingly popping up in all manner of retail products. ETFs and mutual fund managers that have jumped into the market say they have been drawn by managed futures’ ability to provide portfolio diversification that is uncorrelated to the markets.

The need for such a strategy was made painfully clear following the onset of the market crisis in 2008, they say. That year the S&P 500 index plummeted 37 per cent while the Diversified Trends Indicator Index – a long/short index comprising 24 liquid US exchange traded futures contracts – returned 8.29 per cent.

Since then, firms such as Jackson National Life, Principal Funds, Arrow Funds, WisdomTree and Forward Funds have developed products for the retail market that use managed futures as a key component of their investment strategy. At the same time, hedge fund and institutional managers such as Altegris and AQR Funds, among others, have been attempting to bring their investment expertise down market through mutual funds.

But fitting managed futures into mutual funds’ regulatory structure is not easy, which may help explain why managed futures funds have appeared only in the past several years. Funds are prohibited from investing directly in futures contracts. To address that, many have gained access either by investing in structured notes or by using offshore vehicles. Either way, few managed futures funds were available prior to 2008.

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