All signs are pointing to rockier returns for the standard bearers of the investment world: stocks and bonds. With the U.S. Federal Reserve hinting at finally raising interest rates as well as other factors impacting stock returns and bond yields, it’s time to take a closer look at products that are noncorrelated to those investments.
Alternative investments cover a wide asset area, from private equity to hedge funds to managed futures. Managed futures is perhaps the smallest asset space with about $383 billion under management, according to BarclayHedge, a data site that follows CTA (and hedge fund) performance.
Institutional investors often shy away from the futures markets, believing them too risky, however, as part of a portfolio, a managed futures allocation can reduce risk as typically programs are uncorrelated with the S&P 500. In fact, U.S. public pension plan investments in managed futures have surged recently: these funds are adding commodity trading advisors to their Absolute Return Portfolios for many reasons, but mainly to reduce the beta risk from the equity side of the portfolio.