The benefits of managed futures within a well-balanced portfolio include:

    * Opportunity for reduced portfolio volatility risk

    * Potential for enhanced portfolio returns

    * Ability to profit in any economic environment

    * Opportunity to participate easily in global markets

1. Reduced Portfolio Volatility Risk

The primary benefit of adding a managed futures component to a diversified investment portfolio is that it may decrease portfolio volatility risk. This risk-reduction contribution to the portfolio is possible because of the low to slightly negative correlation of managed futures with equities and bonds. One of the key tenets of Modern Portfolio Theory, as developed by the Nobel Prize economist Dr. Harry M. Markowitz, is that more efficient investment portfolios can be created by diversifying among asset categories with low to negative correlations.

2. Potential for Enhanced Portfolio Returns

While managed futures can decrease portfolio risk, they can also simultaneously enhance overall portfolio performance. … Substantiated by an extensive bank of academic research, beginning with the landmark study of Dr. John Linter of Harvard University, in while he wrote that “the combined portfolios of stocks (or stocks and bonds) after include judicious investments … in leveraged managed futures accounts substantial less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone. (Litner John, “The Potential Role of Managed Commodity Financial Futures Accounts [and or funds] in Portfolios of Stocks and Bonds” Annual Conference of Financial Analysts Federation, May 1983.)

3. Ability to Profit in any Economic Environment

Managed futures trading advisors can take advantage of price trends. They can buy futures positions in anticipation of a risking market or sell futures positions if they anticipate a falling market. For example, during periods of hyperinflation, hard commodities such as gold, silver, oil, grains and livestock tend to do well, as do the major world currencies. During deflationary times, futures provide an opportunity to profit by selling into a declining market with the expectation of buying, or closing out the position, at a lower price. Trading advisors can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets.

4. Ease of Global Diversification

The establishment of global futures exchanges and the accompanying increase in actively traded contract offerings have allowed trading advisors to diversify their portfolios by geography as well as by product. For example, managed futures accounts can participate in at least 150 different markets worldwide, including stock indexes, financial instruments, agricultural and tropical profits, precious and non-ferrous metals, currencies and energy products. Trading advisors thus have ample opportunity for profit potential and risk reduction among a broad array of noncorrelated markets.

Please be advised that trading futures and options involves substantial risk of loss and is not suitable for all investors. There are no guarantees of profit no matter who is managing your money, and past performance is not necessarily indicative of future results. An investor must read and understand the current disclosure documents before investing.

This information was copied from Portfolio Diversification Opportunities printed by the Chicago Board of Trade.