During the past decades, the investment management industry has undergone numerous changes. Today, while most investors concentrate on traditional investment vehicles such as stocks, bonds, and currencies, an increasing number of alternative investment products, such as managed futures (i.e., investment funds which used futures and options markets as their primary investment vehicle), are becoming available which offer the investor new means of increasing return while reducing risk through diversification. A current study on "The Benefits of Managed Futures" (supported by the European Derivative Investments and Funds Association - EMFA) offers an updated analysis of the benefits of managed futures. Managed futures performance is reviewed both as a stand-alone investment and as an addition to existing investment portfolios. The study describes the basis for the benefits of managed futures as lying in the differing investment styles and sector specialization's of CTAs. This enables investors to create portfolios of managed futures and traditional assets that offer higher expected returns in market cycles and market conditions when traditional stock or bond market investments may offer lower expected returns. Results of the study show:

1.  That on a stand-alone basis, the risk (standard deviation) of an average individual CTA is not more risky than the average stock in the S&P 500. Moreover, investment in a portfolio of CTAs (e.g., MAR$CTA index) has similar risk to that of the S&P 500. In addition, over the past ten years (1985-1995), investment in a portfolio of commodity trading advisors (e.g., MAR$CTA index) provides risk and return benefits when considered as an addition to a variety of existing passively and actively managed stock and bond portfolios (e.g., S&P 500, Salomon Brothers US and World Government bond indices, Fidelity Magellan Fund and Fidelity Intermediate bond fund, MSCI international and domestic stock indices).

2.  Results also show that correlation tests comparing managed futures indices with traditional assets reveal an interesting property of the relationship between managed futures returns and traditional asset classes. Overall, the correlation between managed futures and stock portfolios is approximately zero. However, when the data are segmented according to whether the stock market rose or fell, results indicate that managed futures are negatively correlated with traditional assets (e.g., stock and stock and bond portfolios) when these case market portfolios posted significant negative returns, and are positively correlated when these portfolios report significant returns. Thus, managed futures may offer unique asset allocation properties and may offer some of the hedging properties of a put option at a lower cost.

It is hoped that the results of this study will put to rest many investor concerns. Simply put, most traditional asset managers presently use futures and options markets in numerous ways (e.g., rebalance portfolios, manage currency risk, trade bonds with option features such as convertibility or callability). Most traditional money managers, however, are restricted by regulation or convention from using more actively traded futures and options contracts. Moreover, as new financial products come into existence, such as futures contracts traded on S&P 500 value or growth stock, managed futures may provide the most logical means of quickly taking advantage of the potential returns from such new products. The logical extension of using investment managers with specialized knowledge of traditional markets to obtain maximum return/risk tradeoffs is to add specialized managers who can obtain the unique returns in market conditions and types of securities not generally available to traditional asset managers, that is, managed futures.

Past Performance is not necessarily indicative of future results. The risk of substantial loss exists in futures trading.