Is A Managed Investment in Futures Right For Your Portfolio?

on September 07 2011 4:13 PM
IBTRADE Alternative Investment CTA Database
The IBTRADE.com Free Alternative Investment Database IBTRADE

Investors looking for Managed Futures accounts or alternative investments may have a harder time finding money managers that suit their investment profiles than those in other asset classes such as equities. For the very high net-worth individual and institutions, Managed Futures or Alternative Investments are commonly related to Hedge Funds.

Managed Futures investments carry a high degree of risk as they also employ a high level of leverage. So an investment in a managed futures account should be risk capital only, and represent a smaller portion of a client's overall portfolio as to minimize losses to principle. Traditionally, the minimum investment levels in managed futures have been relatively high (usually around $50,000 and $1 million and up for Hedge Funds). In a typical asset allocation model for an individual some advisors recommend 5%-10% of a client portfolio be made up of commodities or futures products (including Forex). So unless your portfolio is $500,000 or more the traditional managed account may be out of reach.

However, there are a group of professionals that are registered with the National Futures Association (NFA) called Commodities Trading Advisors who trade client accounts in the Futures Markets on a regular basis. Many of these CTA's also cater to individual investors and require much smaller minimum account sizes to get into their funds, some as low at $5,000.

For the typical individual investor wishing to gain Managed Futures exposure in their investment portfolios, a CTA may be the best way to go. CTA's undergo rigorous oversight by the NFA and must publicly report their performance and trading activity on a monthly basis. The performance reporting is also overseen by the NFA. In addition, all CTA's must submit and maintain something called a Disclosure Document to regulators that specifically outlines the types of investments they buy and sell as well as their style of trading (aggressive, conservative, etc) and in some cases, the volume of trades they typically make.

This type of oversight and transparency by no means guarantees success, but it does allow investors to get a better idea of whether a particular CTA fits their criteria of risk and exposure. Investors are well advised to consult with their own investment advisors before investing in the futures market. Most importantly, investors should understand that past results or no guarantee of future performance.

There are several companies that offer investors access to well-organized databases of CTAs, where you can rank performance, look at best and worst performances by a money manager and compare them to others. One company offering a database of over 120 Managed Investment providers is IBTRADE (www.ibtrade.com). There are several company offering similar type databases, however, the IBTRADE CTA database is free.