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Why
is it called "Managed Futures Revolution"?
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Today, investors are
becoming better educated and informed about the numerous benefits
of participating in professionally managed futures. In the
process, the walls of misconception and myth concerning managed
futures are crumbling. |
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Until
recently, managed futures have primarily been used by
better-informed pension fund managers and sophisticated investors
seeking to better diversify their portfolios. The investing
public, for the most part, has held the belief that all futures
are highly risky, without differentiating between the efforts and
abilities of an individual making his own trading decisions
(amateur) and the professional Commodity Trading Advisor (CTA).
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So why is there a
common misconception that the majority of people who trade
commodity futures lose money? It’s because studies show that the
majority of individuals who trade futures on their own do lose.
And there’s a logical reason for this: insufficient training,
time, and experience. If an unskilled person attempted to practice
law or medicine part-time, he or she would probably perform quite
poorly, just like many non-professional, unskilled futures
traders. So it comes as no surprise that in the highly complex and
challenging field of commodity futures trading, the vast majority
of non-professional, amateur traders fail. |
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Facts
on Professionally Managed Futures |
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In 1973 and 1974, when stocks dropped 41%, commodity prices soared 114%.
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When the S&P 500 fell nearly 30% from September to November of 1987, managed futures rose 10%.
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While the
S&P 500 fell 15% during Iraq’s invasion of Kuwait,
managed futures rose 19%.
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Over approximately the past 25 years, when comparing performance of four major advances and declines in the S&P 500 and corresponding performance, futures were positive in each advance. However, during all the largest S&P 500 stock declines, futures were positive. In all but one decline in the S&P 500, advances in futures completely offset losses in the S&P 500!
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The non-correlation of managed futures and stocks was again highlighted during one of the worst periods ever for stocks the third quarter of 1998, where the average NASDAQ and New York Stock Exchange stocks were down approximately 50% from their 52-week highs. Over this same time period, the Russell 2000 and S&P 500 were respectively down 19.4% and 14.5%. While stocks and major indices were down sharply during the third quarter 1998, the Managed Account Report Trading Advisor qualified Index was up!
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On August 11, 1999, a five-year study was published in the Wall Street Journal, concerning those major
wire houses with the best performance records in asset allocation. The study included Merrill Lynch, Salomon Brothers, Goldman Sachs, Dean Witter, Paine Webber, and other notable
wire houses. The firm with one of the best asset allocation performance records was Goldman Sachs. Why? They were the only stock firm to include futures in their asset allocation!
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These statistics show futures on their own can be an attractive investment. However, we believe futures most attractive feature is in offering profound diversification to a stock and bond portfolio. Studies show
managed futures can increase the performance and balance overall portfolio risk when combined with stocks.
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