MANAGED FUTURES

All-Weather Returns Across All Asset Classes


  • Traditionally diversified long-only stocks and bonds portfolios can provide a false sense of security 
  • Managed futures have developed into powerful tools for capital protection and performance by adding currencies, commodities, and metals as powerful performance drivers and portfolio diversifiers 
  • Our solution - a multi-layered approach to harness the advanced toolset of managed futures in the context of a well-diversified portfolio  

If one takes a peek into most investor portfolios, one can find any combination of stocks and bonds, and some modest amount of cash. Spreading those stocks and bonds allocations over various companies, markets, or geographies can provide a false sense of security. Whoever witnessed a market crash will recall that, when stock prices fall, the fears of rising interest rates and defaults often send bond markets into turmoil as well. 

In fact, not allocating to FX, commodities, metals, and other asset classes, and not taking advantage of the additional flexibility with which they are traded, might increase portfolio risk. 

Due to technological change, market crashes could be more violent than expected

The last two decades have brought us the dot com bubble, the global financial crisis, the European debt crisis, and multiple flash crashes. Several of those crashes resulted in losses of more than 50% of capital. With automated trading systems becoming prevalent worldwide, the next crash could not only come without warning but surprise us with its violence.  

The so-called black boxes of the past.. 

Pre-2008 managed futures investments were all the rage for sophisticated investors. They made money by riding the market trends, and as long as returns were strong, no one bothered about their image of being black boxes. This changed in the wake of the Global Financial Crisis. Markets were shaken to the core, and many futures managers struggled to adapt their strategies to shorter trends, and whipsawing markets. 

Managed Futures 

  • A portfolio of futures contracts actively managed by professionals
  • Considered an alternative investment, often used by funds and institutional investors to provide both portfolio and market diversification momentum (short- and medium-term)
  • Exposure to a broad range of asset classes to help mitigate portfolio risk not available through direct investments such as stocks and bonds 

..have come a long way 

The leading managed futures programs of today are much more robust, i.e., adaptive to market moves, and changes in market characteristics. They take advantage of massive computational power that allows them to analyze price action patterns across thousands of securities using data science and machine learning.  

Using data science and machine learning to our advantage

In line with those advances, today’s managed futures programs are using sophisticated methods to model a variety of risk factors at an unprecedented speed and accuracy. This allows them to enter trades, minimize so-called slippage (losing performance because the price has moved adversely between trade entry and trade execution), and exit trades in an evidence-based manner.

The power of a systematic approach 

One of the main characteristics of today’s managed futures programs is the fact that all investment decisions are fact-based and follow a predetermined, thoroughly tested logic. Doing things systematically is essential when markets act irrationally. Many losses by human traders in such circumstances can be attributed to irrational behavior based on the fear of losing money, stalling a career, and, more often than not, simply losing face!  

Stableton’s approach to managed futures  

Sub-advised by one of Switzerland’s leading institutional hedge fund consultants, we have been focusing on harnessing the inherent benefits of managed futures through a carefully calibrated approach.  

This approach involves multiple layers of diversification across an expanded set of asset classes, geographies, investment strategies, and horizons, managed futures portfolios, and managers.

Adaptive strategies 

  • Momentum (short- and medium-term)
  • Mean reversion (short-term) 
  • Intra-futures markets / relative value
  • Market carry / Roll-yield 

We are barely scratching the surface. Would you like to find out more about the details of this strategy, and how it could potentially fit in your existing portfolio? Request more information here.

 

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Disclaimer: The above article is for educational purposes only and does neither constitue investment advice nor should it be considered to be an invitation or recommendation to buy securities or any other investment products. Please consult your financial advisor about the risks and opoortunities prior to making investment decisions.