In the span of just over thirty years the Managed Futures asset class has gone from being a little known exotic niche of institutional investors to one of the largest, most consistent investments on the planet. As investors have seen the light on “buy-and-hold” in the equities markets, and with the meteoric rise in commodity prices smart money has begun to leave the traditional investment vehicles in droves and head straight toward the managed futures industry.
Now you may be thinking, that all sounds okay but what markets are actually traded in a managed futures account? It is my hope that this article will answer that question and maybe encourage you to seek out the real opportunities that exists for diversification and solid non-correlated portfolio growth with a managed futures account. The futures markets are broken down into sectors with each having its own inherent characteristics. The respective sectors, and the individual markets therein provide immense opportunity for a tremendous diversity of trading philosophies, approaches and strategies. This alone should have most every investor, at least, functionally aware of the asset class and it’s inherent capabilities and risks.
The aim of this list is to give you a fundamental understanding of the available markets, as well as an idea of the range and popularity of the many different sectors available in a managed futures trading account. For simplicity’s sake I’ve categorized each as “futures”. However, almost all include options on futures contracts, and are actually traded as such.
CTA’s (Managed Futures Money Managers) can trade:
Stock Index Futures:With the advent of stock index trading the futures markets witnessed explosive growth in a relatively short period of time. The most popular segment of managed futures trading has been the stock index sector for a number of years. Examples of tradable stock index futures are: the S& P 500, the Nasdaq, the Dow Jones Industrial Average, the Nikkei and the Russell.
Interest Rate Products: Gaining in popularity of late are the interest rate trading sector options available to managed futures money managers. Among the choices are: Eurodollar futures, Treasury Bonds and Notes, Fed Funds and Interest Rate Swaps. Traders can trade the yield curve, The Fed, and even the U.S. Dollar as a function of change in interest rate.
Currency Futures:Currencies are very popular due to the truly global scope and large number of available markets to choose from. Among the currency futures markets available are: the U.S. Dollar Index, the Australian Dollar, the British Pound, Canadian Dollar, Swiss Franc, Japanese Yen and Euro FX. Currency markets allow for true global hedging and risk arbitrage.
Metals Futures: One of the more popular segments over the last five years has been the Metals sector. With the advent of a pretty serious global financial crises, and a ten-year bull market run in the Gold market, Managed Futures Money Managers, especially those that are trend traders have found the metals markets to be a vital source of absolute return as the investing public has flocked to metals as a safe haven for turbulent financial times. The metals markets include: Gold, Silver, Platinum, Palladium and Copper.
Energy Futures: Arguably the most actively traded, and among the most volatile sectors, the Energies sector includes Crude Oil, Unleaded Gasoline, Natural Gas, Home Heating Oil, and Ethanol. With global demand for energies unwaning for the foreseeable future, the energies futures markets promise to provide unlimited profit and growth opportunities for money managers and investors for years to come.
Grains Futures: With global hunger for grains increasing, the grains markets are currently witnessing a surge in growth and popularity among Commodity Trading Advisors. Once of little relative volume and lesser consequence, the grains markets were far less popular and less glamorous. Today however, due to client demand and a stark growth in trading/profit opportunities, grains are quickly becoming a market of choice for emerging Managed Futures Money Managers. The grains markets include: Corn, Wheat, the Soy Complex (Beans, Meal, Oil), Oats, and Rice
Soft Commodity Futures: Just as with the Grains sector the Soft Commodities sector is currently in the middle of a demand and profit driven growth spurt. With markets like Sugar and Cotton experiencing record highs of late, the very high volatility can be effectively harnessed and managed for tremendous profit. Additionally, soft commodities (as well as Grains) provide opportunities that are not immediately apparent as some are used for alternative fuel production. Other examples of Soft Commodity markets include: Coffee, Cocoa, Orange Juice, and Lumber
Meat Futures: The Meat sector is little used and often overlooked. Primarily prone to low volume and strict seasonal tendencies, meats suffer a bit of an identity crises. Traders in the know are well aware that these markets can be quite volatile and present quite a marketable opportunity for option sellers and premium collection strategies.
From the list above it should be quite apparent that there are a wide range of markets and opportunities for Managed Futures Money Managers to choose from. This variety allows for a vast degree of non-correlated diversification from traditional investment vehicles, as well as timely, real diversification within this asset class. For those investors seeking commodity investment Managed Futures offers a far more professional approach typically with very precise, clearly stated risk controls and prudent market timing and endeavor.
While this may appeal an investor should always do their homework. This advice extends to the Money Manager, the program, the firm and the intended market(s). Futures investing, even more professionally managed futures investing, is not suitable for every investor. As always, past performance is not necessarily indicative of future results, and only truly risk capital should be used for futures and options on futures investing