Though many financial advisors say managed futures are a critical component of client portfolios, a large number of these professionals admit they lack a strong understanding of how to best use these complex products in portfolios.

These are some of the key findings from an advisor survey released Monday by Altegris Advisors, which helps independent advisors offer alternative investments.

Close to half of those registered representatives surveyed, 46%, say they currently use managed futures in client accounts, and more than two in five, 41%, plan to increase their current allocation to managed futures in 2017.

In addition, one in four respondents, 25%, say they use managed futures mainly to diversify traditional equity and fixed income strategies, while almost one-third, 31%, believe managed futures should make up more than 5% of client portfolio.

“Amid heightened volatility in currencies, commodities and interest rates, the findings from the Altegris Managed Futures Survey represent a key indication that the current environment is ripe for advisors to implement managed futures in their client portfolios,” said Matt Osborne, CIO of Altegris and portfolio manager of the Altegris Futures Evolution Fund, in a statement.

“Our Futures Evolution Strategy Fund … looks to address these market conditions by offering a proven track record and a unique blend of some of the industry’s leaders in futures and active fixed income,” Osborne added.

Overall, the poll found that nearly nine of 10 reps, or 86%, currently employ alternative investments in client portfolios.

More Training Needed

Despite growing demand for managed futures, there appears to be “a perceived lack of understanding” about the role these products can play in portfolios, according to a press release.

The poll of about 100 advisors found that over one-third, 35%, see “a lack of clarity regarding investment strategy” as their top concern about using managed futures. A nearly equal share of reps, 34%, see a lack of education on the product offering as their primary concern.

In terms of boosting their futures exposure next year, more than one in four advisors, 28%, state they will invest in two mutual funds.

The poll also finds that 17% believe generating absolute returns is their primary reason for using managed futures, while 16% cite diversification for stock-focused strategies as their main motivation. Less than one in 10, or 9%, cite the desire to diversify fixed income holdings as their main reason for turning to managed futures.

“I believe managed futures can offer an actionable path to lower risk, increased diversification and transparency, and ensuring that advisors understand the role and return characteristics of these strategies is of the utmost importance,” Osborne explained. “At Altegris, we are committed to delivering the necessary tools to educate advisors on ways to address today’s volatile markets and the available solutions as they look to preserve and grow their clients’ portfolios.”

The Altegris Futures Evolution Strategy Fund is actively managed and seeks appreciation by capturing returns related to trends in the commodity and financial futures markets, as well as through active fixed-income management. The fund’s portfolio managers work with other asset managers and subadvisors, including DoubleLine Capital, Winton Capital Management and ISAM, to execute its strategy.  

— Check out Advisors Diversify Portfolios as Higher Volatility Looms: Natixis on ThinkAdvisor.