Managed Futures: Strategies, Benefits & Emerging Trends

Managed futures are investment strategies that involve trading in futures contracts and options on futures. These strategies are typically managed by professional investment managers who utilize various trading techniques to achieve returns. They can trade in a wide array of markets, including commodities, currencies and equity indices. By taking long or short positions, managed futures can profit from both rising and falling markets.

Managed futures consist of several key components that contribute to their functionality:

• Futures Contracts: These are agreements to buy or sell an asset at a predetermined price at a future date. They are standardized and traded on exchanges.

• Options on Futures: These give the holder the right, but not the obligation, to buy or sell a futures contract at a specific price before a certain date.

• Trading Strategies: These can include trend following, mean reversion and arbitrage, among others, which are employed based on market conditions and manager expertise.

• Risk Management: Managed futures strategies typically incorporate risk management techniques to mitigate potential losses, including stop-loss orders and diversification across various asset classes.

There are several types of managed futures strategies, each with its unique approach:

• Trend Following: This strategy involves identifying and capitalizing on existing market trends. Traders may enter long positions in rising markets and short positions in declining markets.

• Mean Reversion: This strategy is based on the assumption that prices will revert to their historical averages. Traders look for overbought or oversold conditions to make trades.

• Global Macro: This strategy involves making investment decisions based on macroeconomic trends and geopolitical events. It can include a diverse range of assets, from bonds to commodities.

• Statistical Arbitrage: This strategy uses sophisticated mathematical models to identify price discrepancies between related assets, allowing traders to profit from these inefficiencies.

The managed futures space is constantly evolving, with several new trends emerging:

• Increased Use of Technology: Algorithmic trading and machine learning are becoming more prevalent in managed futures strategies, allowing for quicker and more accurate decision-making.

• Diversification Across Asset Classes: Managers are increasingly diversifying their portfolios across various asset classes, including cryptocurrencies, to enhance returns and reduce risk.

• Focus on ESG: Environmental, social and governance (ESG) factors are gaining prominence, with many managed futures strategies incorporating sustainability criteria into their investment processes.

• Access for Retail Investors: With the rise of robo-advisors and managed accounts, retail investors now have better access to managed futures strategies that were previously available only to institutional investors.

Several funds exemplify the managed futures approach:

• Winton Group: Known for its quantitative trading strategies, Winton employs a variety of managed futures techniques across global markets.

• Alyeska Investment Group: This firm utilizes a multi-strategy approach, including managed futures, to achieve its investment objectives.

• Aspect Capital: A leading systematic investment manager, Aspect focuses on trend-following strategies across diverse asset classes.

Managed futures represent a dynamic and versatile investment strategy that can provide opportunities for diversification and risk management. By understanding the components, types and emerging trends within this space, investors can better position themselves to take advantage of the potential benefits that managed futures can offer. As technology and market conditions continue to evolve, staying informed about these strategies will be crucial for navigating the investment landscape effectively.