BX Alternatives
We have the tools that enable advisors to model alternative assets into complete portfolios . Click here to request sample portfolio construction from BX CIOWhy should you consider managed futures for portfolio construction?
Diversification
Diversification has been called the “free lunch” of investing. That is investors have the ability to hold less risky portfolios (for any given risk level) by assembling a portfolio of uncorrelated assets. Tactical trading strategies have demonstrated quite low correlations with the major asset classes. As a result, including them in portfolios results in a meaningful improvement in the risk/reward trade off.
For example, one blend of managed futures strategies that we looked at demonstrated a correlation of -.053 vs the S&P 500 and .006 to the Bond Aggregate, a meaningful amount of diversification.
Protection in Weak Markets
Tactical trading strategies offer not just general diversification but have historically demonstrated an ability to perform well when capital markets are weak. This is, of course, when diversification is needed the most. We can see the weakest quarters of the S&P and the performance of managed futures at the same time. Historically, what we can see is that managed futures were able to perform well in these periods. On a portfolio level, this helps to limit losses and reduce the overall volatility of the portfolio.
Liquidity
Tactical trading strategies operate in some of the most liquid markets in the world. Unlike other “alternative” investments that, in many cases, require multi-year commitments, tactical trading strategies are, overwhelmingly, executed on highly liquid exchanges. As a result, liquidity is available far more readily than most other “alternative” investments that offer the prospect of diversification.
Pricing Transparency
Tactical trading strategies have the advantage of, in almost all cases, executing on large, established exchanges. As a result, price transparency is frequent and accurate. This is in strong contrast to many other “alternative” offerings that operate in private markets, especially. This gives tactical trading strategies the benefit of reliable valuations throughout time.
Exposure to the Short End of the Yield Curve
Tactical trading strategies are not like most other investment strategies in which securities are purchased. Tactical trading strategies, overwhelmingly, utilize margin contracts which use cash equivalents as collateral. As a result, tactical trading strategies have a natural exposure to the short end of the yield curve. Which, in environments like the one we are in now, bolsters performance.
Preferential Tax Treatment
In almost all cases, tactical trading strategies offer a tax benefit for domestic taxable investors. These strategies are almost always subject to what is known as 1256 tax treatment. Under this arrangement, performance (whether realized or not) is treated as if 60% is long-term and 40% is short-term. This is generally better than many actively traded strategies and those that rely on a large portion of income generation.
Featured Strategies
IXI Fund Managers – Systematic F/X
Systematic price-based, multistrategy FX strategy trading G10 currencies and Gold.
Ag Capital - Discretionary Global Macro
Fundamental discretionary macro trading currencies, commodities, interest rates, and equities
Drury Capital – Systematic Trend Following
Long term systematic trend following, with 50% allocation to non-financial commodities markets
Gamma-Q Commodity Program
Opportunistic fundamental discretionary agriculture and livestock trading strategy.
Opus Futures Advanced Ag Program – Fundamental Commodities
Fundamental discretionary trading on agricultural commodities, mainly grains, oilseeds and livestock
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