Adding Alternatives:
Managed Futures Portfolio Positioning

March 2019 | Retail Version

Throughout 2018, we published research on managed futures and what we believe makes it compelling as the next asset class. As a result of integrating several non-correlated assets and trading strategies into one product, investing in managed futures has historically provided: improved risk-adjusted returns, reduced correlation to traditional asset classes, a more favorable drawdown profile, and crisis alpha. In this report, we shift our focus to selecting a managed futures product, integrating that product into your portfolio, and setting expectations for the risk/return profile of your overall portfolio. In particular, we focus on the use of a blended equity/managed futures product, which allows investors to integrate managed futures into their portfolio, while minimizing the risk of investor psychology getting in the way and derailing the long-term benefits of managed futures.

A 30/40/30 Portfolio: Integrating Equity/Managed Futures Blend Products into an Investor’s Portfolio

In the middle of a raging bull market, investors may question their investment in a non-correlated product that hasn’t put up equity-like returns. By removing a non-correlated asset class like managed futures, which can also generate crisis alpha, investors have positioned their overall portfolio for significantly more risk if equity markets deteriorate. A blended equity/managed futures product offers a potential solution, especially when taking a 30/40/30 portfolio approach.

Managed Futures Product: 50/70 Portfolio Blend

Overall Portfolio: Transition from 60/40 to 30/40/30 Blend

Allocating to Managed Futures Exposure Has Historically Improved Portfolio Return/Risk and Reduced Drawdowns

Based on daily return data from 12/31/1999 to 12/31/2018. Source: Bloomberg LP. Return per risk calculated as annualized return divided by standard deviation.

*For illustrative purposes only. The notional exposure value for managed futures is typically higher than the money invested as a result of the inherent leverage in managed futures products (i.e., $10 may buy $40 in exposure). In terms of dollars invested, a 50/70 Portfolio may look like 50% U.S. Equities, 40% cash and cash equivalents and 10% managed futures investments (100% total). See Page 6 for more on leverage/notional exposure.

U.S. Equities (Equity): S&P 500 TR Index. Bonds: Bloomberg Barclays US Aggregate Bond Total Return Index. Managed Futures: SG CTA Index. 60/40 Portfolio: 60% U.S. Equities/40% Bonds. 50/70 Portfolio: 50% Equity Exposure/70% Managed Futures Exposure. 30/40/30 Portfolio: 30% Equity/40% Bonds/30% 50/70 Portfolio for 45% Equity Exposure/40% Bond Exposure/21% Managed Futures Exposure. Blended indices assume an end of month rebalance to the target allocation.

Alternative investments may not be suitable for all investors and an investment in alternative funds is suitable only for investors who can bear the risks associated with the illiquidity of the fund’s shares and should be viewed as a long-term investment.


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