Why managed futures?

We’ve created a guide to help investors navigate the unique features and benefits of managed futures.


What are managed futures?

Managed futures are a type of alternative investment strategy that has been used by institutional and accredited investors for decades due to its unique and attractive features (see ‘Benefits of Managed Futures’).

Unlike traditional strategies that seek to ‘buy low, sell high‘, managed futures can take both long (buy) and short (sell) positions across a broad universe of futures markets including financial instruments, stock indexes, precious metals, agricultural, commodities, currencies, and energy products.

As a result, managed futures strategies have the potential to profit in many different types economic environments, including both up or down markets.  While investment strategies differ amongst practitioners, managed futures professionals (typically referred to as CTAs) utilize either systematic or discretionary methodologies to manage their portfolio.

What is a quantitative "quant" investment strategy?:
  • Many of the most successful managed futures strategies utilize a quantitative systematic approach.  Quantitative, or “quant,” investment strategies select securities and build a portfolio using a prespecified set of rules, typically in the form of computer code, which collectively are referred to as a ‘model’.  These strategies are then executed systematically, meaning investment decisions are done automatically through the use of computer algorithms rather than at the discretion of the ‘human’ investment manager.

    Black boxes? – While systematic quantitative strategies are sometimes referred to as mysterious ‘black boxes’ whose methods to generate returns are unclear – most actually rely on conceptually intuitive ideas.  And while systematic strategies can certainly have levels of complexity, in reality they ultimately aim to replicate the thought process of an investment or research team in a manner that is robust and scalable.  Rather than relying on the manager’s skill to select investments or forecast the future, quant strategies leverage the power of computation to instruct buy or sell decisions – removing many of the biases and emotional risks.


Are managed futures a good investment?

While not appropriate for all investors, managed futures strategies provide unique benefits that can help enhance investment outcomes;

Benefits of Managed Futures:
  • Managed futures can offer highly diverse investment opportunities both in terms of asset classes and strategies.  For example, WaveFront’s Global Diversified Program utilizes multiple complementary strategies to invest across +60 global financial and commodity markets.

  • Due to virtually no correlation with traditional asset classes, managed futures offer the potential for investors to lower the overall volatility of a balanced investment portfolio. Moreover, investment in diverse global futures markets have the ability to generate profits regardless of market conditions and have shown strong performance during many “crisis periods” for stock markets.

  • Features such as broad diversification and the potential for reduced investment volatility contributes to managed futures ability to boost overall portfolio gains. Integrating managed futures into a diverse, well-balanced investment portfolio of traditional investments can offer more effective performance and provides the potential for higher returns with lower risk.

  • With its ability to generate profit in almost all market conditions, managed futures strategies have a history of performing well in periods where traditional asset classes like stocks and bonds have struggled.  Moreover, managed futures have shown strong performance during many “crisis periods”, including during some of the worst drawdown periods for stocks.

  • Before they can offer their managed futures product to the public, professional  managers like WaveFront are subject to very strict initial and ongoing regulatory requirements and registrations. Firms require deep background checks and rigorous disclosure of documents in order to be approved by the U.S. government’s Commodity Futures Trading Commission.  Ongoing financial and compliance requirements ensure investors are protected from fraud and other risks, which are reviewed by the National Futures Association (NFA).


Are managed futures the same as hedge funds?

Managed futures are different from hedge funds in a number of ways including the type of securities traded, liquidity for investors, and other characteristics.

Managed Futures vs Hedge Funds:
  • While hedge funds can trade in a wide variety of markets including individual stocks and bonds, derivatives, over-the-counter, and private equity, managed futures can generally only trade in exchange cleared futures, options on futures, and forward markets.

  • Unlike many hedge funds, managed futures funds (aka CTAs) must provide clients with daily access to account statements, details of all positions and complete disclosure information. As a result of these requirements, coupled with futures accounts settled daily, investors in CTAs have much higher transparency and liquidity than hedge funds.

Now available in a mutual fund format

The WaveFront Global Investment Program is now available in a daily liquid mutual fund, the WaveFront Global Diversified Investment Class (AHP 1110).


What strategies are used with managed futures?

While every manager has its own unique method to trading, there are common strategies that are most effective at capturing the unique features available in managed futures.

Types of managed futures strategies:
  • Trend following strategies, perhaps the most common and well-known approach amongst CTAs, utilize various indicators and technical signals to determine long, medium, or short-term direction of markets. These strategies aim to exploit the tendency of prices to move in one direction over a period of time due to various investor behaviors such as herding, slow adoption of information etc.

  • Universal carry strategies involve simultaneously holding long and short positions in futures contracts across multiple markets with the aim of exploiting differences in interest rates and other market factors. These strategies are based on the belief that interest rates and other market factors can create temporary price discrepancies between futures contracts in different markets, which can be exploited for profit.

  • Value-based strategies seek to identify undervalued or overvalued assets in futures markets by analyzing factors such as supply and demand dynamics, economic indicators, market sentiment, and other fundamental data. Once these assets are identified, managers may go long or short on futures contracts, depending on whether they believe the asset is undervalued or overvalued, respectively.

  • The WaveFront Global Program utilizes many of these strategies to identify and exploit persistent and predictable fundamental factors and structural characteristics across a globally diversified universe of financial and commodities markets.


Why invest in managed futures now?

Opportunities for managed futures strategies have been growing as a result of the inherent disequilibrium in markets, sparked, most recently, by the Covid crisis and ongoing inflation. With the ability to invest across multiple geographies and asset classes, managed futures strategies are well-poised to capitalize on the current market environment given the many sources of uncertainty, set against a backdrop of increased market volatility and arguably some market complacency.  With low correlation to traditional bond and equity portfolios, strategies such as the WaveFront Global Diversified Program are well positioned to offer a high level of diversification while, equally, having a long track record of delivering attractive levels of risk-adjusted returns.


Why WaveFront?

WaveFront’s quantitative investment strategies have been developed through decades of research and experience through many market cycles. Our dedicated focus to applying a data-driven, scientific approach to investing has allowed us to develop innovative strategies that seek to deliver superior long-term investment performance for our clients.

At WaveFront, we believe that while financial markets are often noisy and constantly evolving, they also have a degree of predictability which can be accessed through effectively harnessing data and technology.  This in our view creates a strong environment for systematic strategies like managed futures when seeking to deliver superior risk adjusted returns with a low correlation to traditional investments.

Global Diversified Program:
  • The WaveFront Global Investment Program seeks to deliver superior long-term absolute and risk-adjusted returns, especially during large equity market drawdowns.

  • The portfolio is constructed through a quantitative investment process that produces long and short positions in futures and options on futures contracts covering global commodities, currencies, interest rates and equity indices. Factors considered include momentum, value, yield, volatility and correlation, in addition to macroeconomic and supply/demand variables.

  • Historically, managed futures strategies were typically only available to institutional and accredited investors through specialized investment vehicles such as separate accounts or limited partnerships.  With the recent growth in ‘liquid alternatives’, strategies such as managed futures are now more broadly available to investors.

    The WaveFront Global Investment Program is now available in a daily liquid mutual fund, the WaveFront Global Diversified Investment Class.


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