V.15:9 (420-422): Managed Futures and Commodity Trading Advisors by Martin Hiemstra

Are managed futures for you? Mysterious for many investors, they nonetheless fill a particular need and are no riskier than traditional equity investments. Dealing with a professional commodity trading advisor (CTA) can certainly help sort through the confusion.

In early 1997, equity markets were on a roll, consistently making new highs. As a result, it was relatively easy for investors to make money in the bull market. But many investors have begun to question whether the stock market can continue to go up. Will their portfolios be overexposed if there’s a correction? Regardless of how the stock market plays out, diversification is the hallmark of any good portfolio, according to portfolio theory. One of the key tenets of modern portfolio theory is that more efficient investment portfolios can be created by diver-sifying among asset categories with low to negative correlations with each other — that is, the performance characteristics of these asset categories are independent of each other. One of the most proven and dynamic asset classes with a low correlation to the stock market is the industry of professional commodity traders. Commodity trading advisors (CTAs) represent a class of professionals who trade commodity and financial futures on regulated global futures and options markets.