Managed Futures

Portfolio Diversification:
Non-correlation to traditional asset classes

The primary benefit of adding an allocation of managed futures to a diversified investment portfolio is that it may decrease overall portfolio volatility risk.

• Managed Futures Correlation to Stocks - (-.02)
• Managed Futures Correlation to Bonds - .07
• Stocks Correlation to Bonds - .22

The potential to reduce risk is possible due to the low to slightly negative correlation of managed futures to traditional asset classes, such as stocks and bonds. One of the key tenets of Modern Portfolio Theory, as developed by Nobel Prize economist Dr. Harry Markowitz, is that more efficient investment portfolios can be created by diversifying among asset classes with low to negative correlations. Managed futures investments have historically performed independently of traditional investments, such as stocks and bonds. This is referred to as non-correlation or the potential for managed futures to perform well regardless of whether traditional markets such as stocks and bonds are rising or falling. The non-correlation of managed futures with traditional asset classes allows portfolio volatility to be reduced by their inclusion in an overall balanced investment portfolio. While there exists a common misconception that futures are highly volatile and risky, adding managed futures as a component to a diversified investment portfolio may actually decrease volatility and increase returns in a portfolio as a whole.





Further evidence of the ability of managed futures to enhance the returns of traditional investments has been documented in a study undertaken by Northern Trust. In Northern Trust's January 2007 report "Wealth in America 2007, Findings from a Survey of Millionaire Households" the key findings stated:

"Nearly half (45%) of millionaires have 10% or more invested in alternative assets; of these, 53% cited improved portfolio diversification as the main reason they have made such a significant allocation to alternatives. Another 34% cited the attraction of higher returns as the main reason for making significant investments in alternatives."

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