As the economy continues to be turbulent and unreliable, many investors are looking at alternative investments that remain stable and can continue to provide returns during a downturn. In 2022, managed futures experienced a sudden, major surge. What caused it? And are managed futures still a worthwhile investment in 2023? Let’s take a look.
What Are Managed Futures?
Investing in futures has been an alternative to the regular stock market for a long time. It’s essentially speculating on the price of an asset class over a given time period. Popular asset classes include commodities and currencies. For example, managed futures traders follow trends of a commodity such as wheat or corn, gold or silver, coffee or soybeans, etc. If you buy a futures contract for a particular commodity, say corn, it’s a promise to buy a certain amount of corn at a particular price, at a specified time in the future. The contract locks in the price. If, in the interim, the price of corn goes up, then after buying it at the lower price, you can sell it at market price and make money.
Of course, as an investor, you’re likely not going to buy and sell actual corn. More likely, you’ll sell the contract itself to someone who does need corn and make money that way. There are also ways to hedge your investment to lower your risk.
Managed futures are an entire portfolio of diversified futures, managed by a Commodity Trading Advisor. The advisor is a registered and credentialed expert who attempts to determine the best commodities to invest in to maximize profit and minimize risk over a given period of time.
Even though managed futures started with commodities, today, you can trade futures for pretty much any type of security, including stocks, bonds, and currencies.
Managed Futures in 2022
Managed futures began about 30 years ago when commodities experts and professional money managers began lending their know-how to investment funds. Since then, they’ve experienced some peaks and valleys, but generally, they’ve remained stable.
Then last year, they experienced a surge. Specifically, managed futures exchange-traded funds. While most other asset classes went down significantly, some investors turned to managed futures ETFs, which managed to grow by more than 30% and over $1 billion in assets.
It’s not hard to see why, in a year that produced mostly valleys, more people would look to managed futures. Aside from being non-correlated to the public markets, they offer liquidity that hedge funds and many other types of alternate investments don’t.
The Future of Managed Futures
So are managed futures still on the way up, or did the bottom drop out? Well, if you’re looking at the surge and thinking you can get a quick windfall, you should probably look elsewhere. However, if you’re looking to add an investment to your existing portfolio that has the potential to reduce overall volatility, then managed futures may do the trick.
Be careful, though, not to go in blind. Always do your due diligence and make sure you’re getting a certified Commodity Trading Advisor. Look at their history as well to see what kind of funds they’ve managed in the past and how they’ve done. And keep an eye on your investments at all times. Don’t just hand your money over to them and expect it to grow for you. Taking an active interest in the investment process and what commodities or other securities are being traded with your money will be advantageous to you in the long run and help ensure you get the best fund management. Or hire an experienced advisor that will keep watch for you.
Depending on what hedges traders put in place and how aggressive they get, managed futures can be quite volatile. Whether prices go up or down, they can make money if they accurately predict the direction of the price. If they can’t see trends, it is difficult to make money in managed futures. Placing a large portion of your portfolio in managed futures is risky.
If you’re looking for a managed futures investment, Eiger Wealth Management can help you.
Contact us to learn more!
The information contained on this site may not reflect current developments; does not constitute investment, tax, or legal advice; and should not be relied upon for such purposes. There is no guarantee that any forecasts made will come to pass. We make no representation about the accuracy of the information or its appropriateness for any given situation. This information is not an offering. Past performance does not guarantee future results.