Futures offer returns in volatile times

With generally low correlation with traditional investments, managed futures have the ability to generate strong returns during times of market stress, according to Select Asset Management.

Select portfolio manager of alternative investments Robert Graham-Smith said although managed futures can be volatile on a standalone basis, in difficult market conditions they can really come into their own to generate strong returns.

“It is this ability to preserve capital in difficult market conditions and improve risk-adjusted returns that makes an allocation to managed futures attractive.”

According to Graham-Smith, managed futures have the ability to act as an effective diversification tool by providing a measure of protection during the recently witnessed market downturn and volatile market conditions.

Despite the opportunities managed futures offer, there were some risks according to a paper released by Select titled, ‘The case for managed futures’.

According to the paper, transparency, leverage and foreign currency exposure were all possible risks when trading in futures.

“Leverage is a key characteristic of investing with managed futures investment managers. Leverage is considered the double-edged sword of investing. The technique that can bring so much excess gain can also be the cause of catastrophic distress, as the demise of Long-Term Capital Management demonstrated so graphically.”