In today’s volatile market, diversifying with managed futures, which typically correlate negatively with stocks and bonds, may go far to smooth out portfolio performance and avoid a steep decline.
Robert J. Lindner of Lindner Capital Advisors, which offers financial advisors help in accessing managed futures, insists that these alternative investments, “would fit into any [high-net-worth] portfolio very nicely. It’s just a question of whether or not you can get them on a cost-effective basis.”
Managed futures are traded by commodity trading advisors (CTAs) registered with the Commodity Futures Trading Commission. Most use a trend-following trading program; others employ one that is market-neutral.
Registered CTAs will be found on the website of the National Futures Association, a self-regulatory body.
If someone who represents himself or herself as a CTA is not listed, “They’re probably a fraud,” said Todd Petzel, an NFA board member for nearly 20 years and CIO of Offit Capital in New York, in an interview.
Another way to invest in managed futures is for an RIA to register as a commodity pool operator. That enables the advisor to direct groups of clients’ assets into the industry, notes Petzel.
Indeed, managed futures can further diversify an already diversified portfolio; but savvy allocation is critical.
“Because managed futures are so new to advisors, a lot of them are afraid to allocate more than 3 percent to 5 percent. If you’re going to use that, don’t even bother. It doesn’t have the effect you’re looking for in terms of diversification and lowering volatility,” says Marietta, Ga.-based Lindner.
Lindner says that his firm’s Contemporary Portfolio series dedicates between 25% and 28% to the class.