Popular Indices:

The Continuous Commodity Index (CCI)
Fully named the Thomson Reuters Equal Weight Continuous Commodity Index is recognized as a major barometer of commodity prices within the industry.  The 17 commodity futures that make up the commodity index  are:   Wheat, Sugar No.11, Soybeans, Silver, Platinum, Orange Juice, Natural Gas, Live Hobs, Live Cattle, Heating Oil, Gold, Crude Oil, Cotton, Corn, Copper, Coffee ‘C’, Cocoa.

The Dow Jones – UBS Commodity Index
The Dow Jones-UBS Commodity Index DJ-UBSCI minimizes concentration in any one commodity or sector and currently has 19 futures in seven sectors included in the commodity index.  Rules included within the calculation include no commodity can comprise less than 2% or more than 15% of the index annually, as well no sector can represent more than 33% of the index annually.

S&P GSCI (formerly the Goldman Sachs Commodity Index)
The S&P GSCI is a tradable index through the Chicago Mercantile Exchange.   Originally developed by Goldman Sachs, ownership transferred to S&P who currently owns and publishes it.  Trades are executed on futures contracts and uses multiples of 250.  The Commodity Index comprises 24 commodities from all sectors – energy, metals, agricultural, livestock and metals.

Thomson Reuters/Jefferies CRB Index
The Thomson Reuters/Jefferies CRB Index is a commodity index that first appeared in 1958, first calculated by the Commodity Research Bureau, Inc.

It currently is made up of 19 commodities as quoted on the NYMEX, CBOT, LME, CME and COMEX exchanges. These are sorted into 4 groups, each with different weightings. These groups are:
• Petroleum based products (based on their importance to global trade, always make up 33% of the weightings)
• Liquid assets
• Highly liquid assets
• Diverse commodities.

Rogers International Commodity Index
The RICI is a US Dollar based total return index designed by Jim Rogers.  One of the broadest commodity indexes, the RICI is calculated from 37 commodities from 13 international exchanges.  Commodities will be considered to be included within the index if it plays a significant role in worldwide consumption.

The index is divided into three sub-indices, which reflect the three sub-segments of the RICI – RICI Agriculture, RICI Energy and RICI Metals. The sub-indices’ contribution to main index from the beginning are Agriculture – 34.90%, Energy – 44.00%, Metals – 21.10% according to the RICI Handbook.

Standard & Poor’s Commodity Index
The SPCI is a commodity price index that measures change on actively traded sectors within the US: Energy, Metals, Grains, Fibers & Softs and Livestock.  Industrially used commodities that are consumed make up the SPCI.

The following make up the Commodity Index:
Natural Gas (17.65%), Unleaded Gas (12.16%), Heating Oil (12.13%), Crude Oil (11.41%), Wheat (5.15%), Live Cattle (4.87%), Corn (4.48%), Coffee (3.88%), Soybeans (3.84%), Sugar (3.80%), Silver (3.67%), Copper (3.39%), Cotton (3.22%), Soybean Oil (2.98%), Cocoa (2.79%), Soybean Meal (2.57%), Lean Hogs (2.04%)

The Commodity Index and Managed Futures
Managed Futures managers – CTA’s may consider commodity indexes for multiple purposes and may disclose a commodity index’s purpose within their strategy to the marketplace.  Performance of commodities indices may reflect similarities with a Managed Futures product, however the Managed Futures product is effected only by the directional entries into the market place on the individual products selected.  Sector focus may indicate larger similarities, however managed futures and commodity indexes are independent of one another.

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Please Note:
Investing in managed futures is not for everyone. If you are new to our site,
please take the time to read our legal disclaimer.

Where did Futures and Options Begin?
Futures and Options began at different times.   The very first futures exchange was the Dojima Rice Exchange in Japan which started in the 1730′s.  This met the needs of samurai who were paid in rice, and after a bad harvest needed stability in the conversion of rice to currency.  This Exchange was the center of Japan’s system of rice brokers.  Only dealing in Futures, not Futures and Options.  The Chicago Board of Trade was the first ever ‘exchange traded’ contracts in 1864 called futures contracts which began with grain.

Options to purchase are believed to be used in Ancient times, a primary example of options is within the real estate market where a buyer pays for the right to buy several adjacent plots, but not the obligation to purchase.  Futures and Options have many similarities, and in the 1690′s puts and ‘refusals’ (calls) became a well-known trading instrument during the reign of William and Mary.

Settlement
In Futures and Options, settlement is the act of consummating the contract.  For Futures, consummating the product is done with Physical delivery or a Cash Settlement.  Physical delivery is the delivery of the underlying asset to the owner of the contract at contract expiry.  A Cash settlement is a payment of the underlying reference rate where the parties involved by exchanging cash when the contract expires.  This is commonly used with futures Index contracts.

With Futures and Options, Options settlement is the execution of the right to Buy long or Sell Short, and entering the position that the options allows.  Once this option is settled, the owner holds a position in the market to be settled by either selling or buying to end the position, or waiting to take delivery of cash or physically.

Contracts and Exchanges
Futures and Options are available on many different kind of traceable assets to be categorized within the following areas: Foreign exchange markets, Money Markets, Bond Markets, Equity Markets, Soft Commodities markets.

Futures and Options are executed within the following exchanges:  CME Grouop, NYSE Euronext, South African Futures Exchange, Sydney Futures Exchange, Tokyo Stock Exchange, Tokyo Commodity Exchange, Tokyo Financial Exchange, Osaka Securities Exchange, London Metal Exchange, Intercontinental Exchange, Dubai Mercantile Exchange, Korea Exchange, Singapore Exchange, Rosario Futures Exchange.

Contract Regulations
Futures and Options are regulated within the United States by the Commodity Futures Trading Commission who is an independent agency of the US Government.  Punishments and fines are delivered through this organization in association with rule breaking relating to Futures and Options practices.

Futures and Options with Managed Futures
Managed Futures utilize futures and options within the related strategy.  Each strategy and manager is different.  eManaged Futures chooses its managers based on the following criteria:

• Positive Returns in every year including the crash of 2008
• *Inception Date of 2007 or earlier
• *Average Return net of fees 14% or greater
  *Please remember that past performance does not guarantee futures profits and we cannot guarantee this criteria will be met with future investments.
  
• **Annual Drawdown never greater than Annual Returns
  **We cannot guarantee that investments will for certain meet this criteria in the future. Please fully evaluate all potential benefits and risks before making an investment.

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Please Note:
Investing in managed futures is not for everyone. If you are new to our site,
please take the time to read our legal disclaimer.

Futures
Dow Jones Futures are traded through the CME Group and are a tradable contract for a future delivery of Dow Jones Futures.  The CME Group issues E-Mini Dow ($5), Futures (YM), the DJIA ($10) Futures (DJ) and the Big Dow DJIA ($25) Futures (DD) contracts which trade on the open outcry auction and electronic networks.

Options
An alternative to purchasing Dow Jones Futures is purchasing an option to enter a short or long position – Put or Call.  These options are issued through the Chicago Board Options Exchange on the root Dow symbol DJX, or with a Leap (longer term option).

Cash Values
The cash value of the $10 Dow Jones futures contract is ten times the Dow Index. For example, if the Dow is at 10,000, the value of the contract is $100,000 (10,000 x $10 = $100,000). For the E-Mini $5 contract, if the Dow is at 10,000, the value of the contract is $50,000 (10,000 x $5 = $50,000). Each point move in the Dow Jones Industrial Average is equal to $10 in the $10 Dow Jones Futures Contract, and equal to $5 in the Dow Jones Futures E-Mini Contract. For example, if the Dow moved 50 points in a day, it would be equivalent to $500 in the $10 DJIA futures contract and $250 in the $5 Mini DJIA futures.

Settlement
On the day of settlement for owning Dow Jones Futures, cash is delivered, not shares of stock.

DJIA Crashes
Historically, the Dow Jones has had periods of growth, and periods of decline.  On October 29th, 1929 – Black Tuesday, the Dow Jones Industrial Average fell by 38 points to 260, a drop of 12.8%.  This drop continued to drop, and after 2 days the DJIA ‘s total drop was 23%.  Finally at the bottom of the drop the Dow Jones Industrial Average declined 89%.

On September 16th 2008, large financial institutions began to fail due to packaged subprime loans and credit default swaps.  After this crash was all said and done, the DJIA had dropped 54% from its October 9th, 2007 peak.

Chart taken from Google Finance
http://www.google.com/finance?q=INDEXDJX:.DJI

Managed Futures
Dow Jones Futures, professionally managed within a managed futures account provides the ability for the manager to sell short, or buy long the market, mitigating the possibility of losing on a stock only purchase by utilizing the value of futures bidirectional market entry.  We believe that with professional management, proper inclusion of indices such as the Dow Jones Futures allows for sustainable returns through a Managed Futures product can add value, and overall…returns.

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Please Note:
Investing in managed futures is not for everyone. If you are new to our site,
please take the time to read our legal disclaimer.

Alternative Investment Product Types

Managed Futures
Managed Futures are Alternative Investment products that use a professional money manager who decides on when and what is bought or sold for a profit or loss (I know I for one don’t forget what the markets did in 2008!) in exchange for a percentage of the returns.  These Alternative Investment managers are providing their trading decision making skills and apply them to your investment account.  Managers are paid management fees and incentive fees.  Numerous investment types pay their managers in a similar fashion.

Hedge Funds
A hedge fund is a private investment fund that participates in a range of assets and a variety of investment strategies intended to protect the fund’s investors from downturns in the market while maximizing returns on market upswings. The Hedge Fund Manager applies a trading strategy and allows a limited number of participants to be involved.   Hedge Funds have limitations surrounding the qualifications of their investors.

Private Equity Offerings
Private Equity is an Alternative Investment consisting of equity securities that are not listed on, or traded on public Equity Markets.

Currency Funds
Currency Funds is an Alternative Investment where an investment manager provides professional management through an Investment Strategy of publicly traded currency products.

Limited Partnerships
Limited Partnerships is an Alternative Investment where a form of partnership is formed where there is one or more general partner who manages the operations, and one or more limited partners who hold limited liability – they are only liable on debts incurred by the firm to the extent of their investment, and have no management authority.

Futures
Futures are an Alternative Investment which is comprised of a standard contract between two parties to exchange an asset, but with delivery on a future specified date.  These products are traded on a Futures Exchange.

Options
Options are an Alternative Investment which provides the option to purchase/sell a specified product at a reference price which is typically referred to as a “strike” price.  The owner of the option has the right, but not the obligation to purchase/sell.

Leaps
Leaps are an Alternative Investment which stands for Long Term Equity Anticipation Security, and are options of a longer term than traditional options.  Typically, LEAPS are extended 2 years out.

What Alternative Investments are Not
Alternative Investments are investments outside the traditional vehicles:  stocks bonds and cash.
•    Stocks or Capital Stock represents business equity invested into a business by an individual called the stock holder.  The ‘Stock’ serves as a record of the equity owned.
•    Bonds are debt security where the owner of the ‘bond’ is paid interest or a coupon until the bond is completely paid off.
•    Cash is another word for Money within its physical form.

Who Invests in Alternative Investments?
Individuals, Sophisticated Investors and Qualified Eligible Persons invest in Alternative Investments.

Individuals
Individuals, who have the available capital to invest, have the opportunity to invest in some of the listed Alternative Investments.  Managed Futures are available for Individuals.

Sophisticated Investors
Sophisticated investors invest in Alternative Investments because the criteria they meet provide logical association to the risks of Alternative Investments.  Sophisticated investors have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.  To be classified as a sophisticated investor, a person must either have a net worth of $2.5 million or have earned more than $250,000 in the past two years.

QEP
QEP or Qualified Eligible Persons are Investors that meet the following requirements

• investment companies registered under the Investment Company Act (i.e. mutual funds)
• certain business development companies (defined under both the Investment Company Act and Investment Advisers Act)
• banks, savings and loan associations, and other like institutions acting for their own accounts or for the account of a QEP
• insurance companies acting for their own account or for the account of a qualified eligible person
• plans established and maintained by various governments and related bodies for the benefit of their employees, if such plan has total assets in excess of $5,000,000
• employee benefit plans within the meaning of the ERISA
• 501(c)(3) organizations with total assets in excess of $5,000,000
• corporations, business trusts, partnerships, LLCs or similar business ventures with total assets in excess of $5,000,000 and not formed for the specific purpose of participating in the exempt investment program
• a natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of either his purchase in the exempt pool or his opening of an exempt account exceeds $2.5 Million
• A natural person who had an individual income in excess of $250,000 in each of the two most recent years.
• pools, trusts, insurance company separate accounts or bank collective trusts, with total assets in excess of $5,000,000
• other entities authorized by law to engage in such transactions

Alternative Investments are not for everyone, which should be clear from the diverse product range, and expectations for qualifying to invest.

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Please Note:
Investing in managed futures is not for everyone. If you are new to our site,
please take the time to read our legal disclaimer.

Initial Futures Margin
The first criteria are Initial Futures Margin.  Initial futures Margin sets the expectation for the CTA that the account they’re managing holds a specified amount of capital for accepted entry into the market place for purchase of the contract.  Initial margin is the same for 1 contract, or 100 contracts, so if the initial margin is $2000 per contract, the initial Futures Margin is $2000*100 Contracts.  A specific example of futures margin is the S&P 500 Full Contract, which has the requirement of  $28,125 to be held within the trading account prior to entry into the market.   If there is insufficient capital available for the Initial Futures Margin, the contract is restricted from purchase until an increase of capital within the trading account is made available.

Maintenance Futures Margin
Once the trade has been placed, and the position is open, maintenance futures margin is generally lower than initial margin.  As an example, the S&P 500 Full Contract has a maintenance futures margin of $22,500.  This is the minimum amount that the contract holder is expected to have in the account per position for the contract.  If the account is moved into a position where the contract was purchased and now the maintenance futures margin is no longer sufficient to cover the minimum amount, the account holder receives a ‘margin call’, meaning that the broker will contact the CTA’s client to deposit additional margin.  These requirements are placed to be a control point for investor protection, and for institution protection.   In the past, institutions determined their own expectations and requirements for futures margin, and as a result, more aggressive requirements caused the dissolution of some institutions when large market fluctuations occurred.  For this reason, following futures margin requirements is strictly upheld by all institutions practicing within the Futures Industry.   These costs are set by the exchange the product is traded on.

Managed Futures
For Managed Futures, futures margin is determined by the exchanges.  The CTA who trades with proper planning for the amount of contracts in line with their money management rules can avoid negative consequences such as margin calls to the client from the broker.  It should be noted this is not a guarantee of avoiding a margin call.  This professional management of your futures portfolio provides futures margin monitoring a side benefit of owning managed futures within your portfolio.

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Please Note:
Investing in managed futures is not for everyone. If you are new to our site,
please take the time to read our legal disclaimer.

Futures in the USA have a long history of providing value to the American economy.  The following information provides an education of Exchanges, Clearing Firms, US Futures Regulators, and Brokers.

US Futures Regulators

The National Futures Association (NFA) is the industry wide, self-regulatory organization for the Futures USA industry.  Stated on their website (http://www.nfa.futures.org/NFA-about-nfa/index.HTML) : “We strive every day to develop rules, programs and services that safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities.”

CFTC (Commodity Futures Trading Commission) assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, protecting market participants against fraud, manipulation, and abusive trading practices, and by ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.

The CFTC’s mission is to protect market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives that are subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound markets for Futures in the USA.

Exchanges

US Futures Exchanges are found within New York and Chicago and provide a location for Clearing Firms to meet and clear orders.  Exchanges clear orders through the old ‘open outcry’, or ‘Pit’ method, however most products are moving toward if not already on the electronic clearing method.  Technology has recently changed USA futures for the better.

There are 3 US Futures Exchanges which clear most of the contracts within North America.  They are the CME (Chicago Mercantile Exchange), the CBOT (Chicago Board of Trade), and the NYMEX (New York Mercantile Exchange).  All three exchanges are owned by the CME Group who has acquired these exchanges in a series of mergers and acquisitions over the years.

CME , the Chicago Mercantile Exchange is a US Futures financial and commodity exchange dealing in derivatives.  Products traded at the CME are:  Agriculture, Economic Events, Energy, FX, Equity Indexes, Interest Rates, Real Estate, Weather

CBOT: The Chicago Board of Trade (CBOT) is a US Futures exchange dealing in Futures and options.  It is the worlds oldest futures and options exchange established in 1848.  Products traded are in the following categories: Agricultural Products, Equities Indexes,  Interest Rates.

The New York Mercantile Exchange is divided into two divisions based on the fact that the two divisions were once individual exchanges: COMEX and NYMEX  Products traded are in the following categories: Metal, Agriculture, Energy

Clearing Firms

The following are clearing firms that the CME Group had on record as of April 07, 2011.   Many US Futures Clearing firms are active, however not all engage on all of the exchanges.

US Futures brokerages have a direct relationship with a client, and takes orders from the client.  The broker passes the orders to clear to the clearing firm who executes the trades on the ‘floor’ level.  Brokerages can have many clearing firm relationships depending on the client/product need.

eManaged Futures is registered with the Commodity Futures Trading Commission as an Introducing Broker specializing in providing managed futures products that meet our investment criteria:

• Positive Returns in every year including the crash of 2008
• *Inception Date of 2007 or earlier
• *Average Return net of fees 14% or greater
  *Please remember that past performance does not guarantee futures profits and we cannot guarantee this criteria will be met with future investments.
  
• **Annual Drawdown never greater than Annual Returns
  **We cannot guarantee that investments will for certain meet this criteria in the future. Please fully evaluate all potential benefits and risks before making an investment.

Please contact us for additional information.

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Please Note:
Investing in managed futures is not for everyone. If you are new to our site,
please take the time to read our legal disclaimer.

Buying and Selling
Managed Futures can purchase futures and commodity contracts in either direction, short, or long. Long/Short strategies involves buying long equities that are expected to increase in value and selling short equities that are expected to decrease in value.
Mutual Funds can purchase Equities, or stocks, bonds, short-term money market instruments, and/or other securities. They are restricted to long only purchases, or purchasing products that are expected to increase in value.

Manager
A Managed Futures manager is called a Commodity Trading Advisor (CTA) who makes buying and selling decisions in accordance with the account’s objectives
A Mutual Fund has a Fund manager who makes the buying and selling decisions in accordance with the funds objectives.

Management Fees
Traditionally Managed Futures have two types of fees. A Performance Fee, usually 20% of profits, and a management fee, usually 2 % of funds under management.
Traditionally, Mutual Funds have two main types of fees. A ‘load’ which is a charge based on a % of funds deposited to the fund which is commonly charged when the placement is made. And an annual fee which is a % based on assets under management.

Investment Approach
There are two main types of approaches within Managed Futures, trend followers and market-neutral traders. Trend followers use proprietary technical or fundamental methods to decide the direction on a trade (long or short). Market-neutral traders look to profit from spreading different markets.
Differences in Mutual Fund approach are commonly made within the following areas: Market Cap (mid-cap, large-cap), Growth vs. Value, Index Funds vs Active Management, Concentration: Equity Funds, Bond Funds, Money Market Funds, Fund of Funds, Share Classes

Documentation
Managed Futures documentation is called a disclosure document. It provides a full description of the approach, compensation, management fees, and historical performance.
Mutual funds legal document is called a prospectus that describes the securities they offer. It provides a full description of the approach, compensation, management fees and more.

Regulators
In the United States, Managed Futures are regulated by the Commodity Futures Trading Commission, and the National Futures Association
In the United States, mutual funds are regulated by the Securities and Exchange Commission (SEC).

Risks
For Managed Futures, the risks include Inflation Risk, Manager Risk, Liquidity Risk, Leverage Risk, Volatility Risk, Counterparty Risk, Creditworthiness Risk, and Principal Risk.
In Mutual Funds, the risks include Country Risk, Credit Risk, Currency Risk, Income Risk, Industry Risk, Inflation Risk, Interest Rate Risk, Manager Risk, Market Risk, and principal Risk.

We believe that our product selection criteria helps to manage the risks involved with managed futures accounts.

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Please be advised that trading futures involves substantial risk of loss no matter who is managing your money. Such an investment is not suitable for everyone.

A Self Directed 401(k) is a is a US Government regulated Tax Deferral account from which you can invest in a Managed Futures products and defer taxation on capital gains.  This is another way to allow the profit gained by investing in managed futures to compound.  Using up Self Directed IRA room to compound gained equity and avoid paying out tax meets the investor’s goals of growing total funds.

The below graph illustrates the difference tax-deferred compounding can make over the long-term growth of a tax-deferred savings vehicle. This simple example assumes $100 invested biweekly, a 5% interest rate, and a 28% federal tax rate. Distributions prior to age 59½ may be subject to a 10% tax penalty and other restrictions. The tax-deferred growth amounts show the total value of a tax-deferred investment before deduction of any applicable federal, state, or local income taxes upon distribution, and before deduction of any contract charges.

Restrictions

There are certain types of transactions that you cannot perform through a 401(k).

• Self Dealing.  The IRS prohibits “self-dealing,” investments in which you or family members of lineal descent have prior ownership. This would apply to Managed Futures if your relative was one of our recommended Account Managers.  The IRS defines a prohibited transaction as follows:   “Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant).”–Source IRS Publication 590
• Arms Length.  Any Investment that is made within a self directed IRA must be made at arms length.  Arms length is most commonly defined as a willing seller and willing buyer coming together with no undue influence from outside sources.

Can Self Directed IRA’s hold multiple investments?

Yes, you can hold multiple investments within the Self Directed IRA tax shelter.  Since is it’s a tax protection around your portfolio, the only restrictions have already been referenced.

Setting up a Self Directed IRA

Setting up a self directed 401(k) is available through one of our associated trust companies.

• Equity Trust Company
• Millennium Trust Company

For assistance with setting up your self-directed IRA, contact us for assistance in setting up your account.

The end goal of setting up a self directed 401(k) is to obtain the benefits of deferring the payment of all taxes until retirement.  Your Managed Futures products within your portfolio will receive the benefits of compounding which will greatly improve your overall returns.

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Reminder: There is a substantial risk of loss in futures trading.  Past performance is no guarantee of future profits.

Modern Portfolio Theory

In 1952 the Professor developed a Portfolio Theory that thirty-eight years later won the Nobel Prize.   Today’s savvy Investors shape their portfolios based on the work of Professor Harry Markowitz of the University of Chicago.

Modern Portfolio Theory as it’s called today (MPT) “reduces risk only when assets are combined whose prices move inversely, or at different times, in relation to each other.” said Markowitz.  Having shares from different sectors that are in the same asset class (ex. Equities) only removes your sector risk within the asset class.  When holding a security that tends to move in ‘sync’ with other securities, correlation risk exists. Markowitz described in his articles “Portfolio Selection” within the Journal of Finance, in Mar 1952 how to combine assets into diversified portfolios efficiently.

Correlation

In the world of finance, Correlations are a statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management.

Investopedia on Correlation:

“Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random. “

The conclusion of Modern Portfolio Theory provides is to develop a portfolio that is diversified with provides the highest returns with the lease amount of volatility taking advantage of uncorrelated asset classes. Only if it trades successfully, a managed futures account can help add diversity to a portfolio.

Many Investors are under the impression that their asset including Stocks, Bonds and International Equities are ‘diversified’.  They are different asset classes; however they are closely correlated and therefore not diversified optimally.  Take one look at the crash of 2008 and you’ll conclude their approach needs to be improved.

The Chart from CME below shows how Managed Futures performed during market declines within the Stock Market.

*Courtesy CME Group: Managed Futures: Portfolio Diversification Opportunities

The maximum draw down for stocks was –44.7 percent during the period of 09/2000 through 09/2002

Key Events during 1984 – 2008

The above chart calls out point of decline in US Stocks, and highlights the performance of Managed Futures during this time.  Comparing the performance of US Stocks during a Managed Futures decline is therefore a worthwhile tasks for a holistic view of this comparison. During 1992, 2000, and 2004 were the largest Managed Futures declines.  In 1992, US Stocks continued to gradually rise during the Managed Futures decline.  In 2000, US Stocks declined at a slower rate of Managed Futures.  In 2004, US Stocks declined, however at a lesser rate than Managed Futures.   This information provide a holistic view of a comparison between US Stocks and Managed Futures accounts.

Dr. John Lintner, of Harvard University wrote that “the combined portfolio of stocks (or stocks and bonds) after including judicious investments….in leveraged managed futures accounts show substantially less risk at every possible level of expected returns than portfolios of stocks (or stocks and bonds) alone”

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Reminder: There is a substantial risk of loss in futures trading.  Past performance is no guarantee of future profits.

When evaluating what asset class to allocate to within your portfolio, looking at asset class statistics is one of the first logical places to begin.  Performance of asset classes compared against each other pictorially shows the value of holding asset classes alongside each other.  With the asset class relationships clear, allocation decisions are that much less complicated.

One of these points of clarity is the relationship between Managed Futures (CISDM) and Managed Stocks (S&P 500 Index) .  Understanding the points of performance fluctuation in relation to each other over the below timeline provides a good indication of the lack of performance relationship with these two asset classes.

Industry Profit Potential

Another key point of interest is that over the years of 1980 to early 2010, managed futures outperformed almost every other asset class, including high -performing S&P 500 Total Returns.

Taking a look at the chart below, you can see that Managed Futures have outperformed International and U.S Stocks from 1980 to 2010.  A $10,000 investment allocated to mirror the S&P 500 would have grown to $258,738 by the end of 2010.  The same $10,000 initial investment reflecting the Morgan Stanley Capital International Index of world stocks would have grown to $87,360.  Furthermore, the same $10,000 investment reflecting the Center for International Securities and Derivatives markets weighting, would now be worth $660,559.

Please be advised that past performance is not a guarantee of future profits.

*1- Managed Futures: The CISDM CTA EW Index reflects the average return for CTAs reporting to CISDM database. In order to be included in a CISDM CTA Index, a CTA must have at least $500,000 under management and at least a 12- month track record.
*2- U.S. Stocks: The S&P 500 TR Index is comprised of the S&P 500 Price Index adjusted for monthly dividends from January 1980 through November 2000 and the S&P 500 Total Return from December 2000.
*3- International Stocks: The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of 22 major developed markets excluding the US & Canada.

Product Specific Profit Potential

Just like with any other industry, those who make it within the down years are recognized the following up swing of the market re-growth as ‘leaders’ and ‘ones to follow’.  Deservedly so.

Here is a chart resembling some of the Managed Futures products that our company recently shortlisted who outperformed the crash.  These Managed Futures products have shown the ability to be able to perform well beyond the ‘stable’ investment environment before 2008.

*Chart proprietary of emanagedfutures.com

Which leads well into our next segment, and another major benefit of managed futures – Potential to lower overall portfolio risk.

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Reminder: There is a substantial risk of loss in futures trading.  Past performance is no guarantee of future profits.