Abstract
Managed futures return are achieved as stand alone investments and also when they are combined with other assets and portfolios. The commodity trading advisors take care of designing portfolios in a manner, which reduced risks.
Investment management industry has evolved in numerous ways in the last couple of decades. Changes in information technology, investor demands and financial regulation has urged people to turn their attention to new investment products. These days’ investors have adopted different investment vehicles such as currencies, stocks and bonds.
More and more investors are opting for managed futures as investment vehicles. These may include direct investment, buying commodity pools, hedge funds or buying commodity funds. This may be done with the help of CTAs or commodity trading advisors. The commodity trading advisors make use of options markets as well as global futures for carrying out their trading activities.
Zero sum game:
Even though economic benefit is extended to the underlying users by the futures and the options markets, it is considered that the traders of the futures and the options markets operate in zero sum game. Zero sum game is a condition when the investor’s gains become equal to the investor losses. It is also seen that long term managed futures return is only the “risk free return” on the capital invested. The zero sum game however, does not prove to be a limiting factor in the investments from taking place. The commodity trading advisors design the investment portfolios in such a manner, which minimizes the risks. Differential, which exists between carry costs and certain institutional characteristics of the investors allow the CTAs to avail of differences in “short term pricing” between cash market positions, futures and options, which are theoretically similar. Therefore, it has been observed that in case of the commodity trading advisors, arbitrage profits may be availed under differing conditions of the market.
Pattern followed by managed futures returns:
It has been observed that investments made in managed futures extend benefits if invested on a “stand alone” basis as well as combination with other asset portfolios and traditional benefits.
