Managed Futures and long-term profitability

Managed futures have been criticized for their long-term profitability, with some arguing that they have zero profitability over extended periods. However, this view is not universally shared, and the evidence suggests that managed futures can be a valuable addition to a diversified portfolio, offering both short-term and long-term benefits. 1. **Historical Performance**: Managed futures have demonstrated strong performance in both up and down markets, with low correlation to traditional asset classes. This performance is particularly notable during periods of market crisis, where managed futures have been credited with providing "crisis alpha" due to their ability to take short positions in declining asset classes. 2. **Diversification Benefits**: Managed futures offer non-directional and non-correlated exposure to various asset classes, including commodities, fixed income, equities, and currencies. This diversification can help mitigate portfolio risk and provide a hedge against traditional market volatility. 3. **Strategic Versatility**: Managed futures strategies encompass a range of approaches, including trend following, discretionary strategies, and fundamental analysis. This versatility allows managers to adapt to different market conditions and capitalize on various types of price movements. 4. **Regulatory Oversight**: The managed futures industry is heavily regulated, which has contributed to its reputation for stability and professionalism. Compliance with quarterly reporting and oversight by the Commodity Futures Trading Commission and the National Futures Association ensures transparency and accountability. 5. **Inclusion in Portfolios**: Incorporating managed futures into a long-term portfolio can enhance risk-adjusted returns and provide a differentiated return stream that is not easily replicated by traditional assets. The ability to take short positions means that managed futures can generate positive returns during market downturns, making them a valuable component in a diversified portfolio. In conclusion, while managed futures may not be suitable for all investors due to their complexity and potential for underperformance, they can be a valuable addition to a well-diversified portfolio for those seeking both short-term liquidity and long-term profitability.