Managed Futures Account

A Managed Futures Account (MFA) is a form of alternative investment, similar to a mutual fund, that takes long and short positions in futures contracts, government securities, and options on futures contracts.

Managed futures are operated by licensed Commodity Trading Advisors, or CTAs, who are regulated in the United States by the Commodity Futures Trading Commission and the National Futures Association, or NFA. Some are compensated on a performance fee basis, usually 15% to 30% of profits. Other CTAs are compensated by charging a per trade cost whenever the account or fund trades. Most CTAs also charge a management fee per year, usually between 1% to 2% of the account size.

Managed futures accounts include, but are not limited to, commodity pools and commodity funds.

MFAs are generally managed on the basis of technical analysis, and involve going long or short in futures contracts in areas such as metals, grains, equity indexes and commodities of all kinds. Currency futures are also commonly traded.

For the years 1993 to 2002, managed futures had a compound average annual return of 6.9%, while for U.S. stocks (based on the S&P 500 total return index) the return was 9.3% and 9.5% for U.S. Treasury bonds.

Benefits

Managed futures have historically displayed very low correlations to traditional investments, such as stocks and bonds. Following modern portfolio theory, this lack of correlation builds the robustness of the portfolio, reducing portfolio volatility and risk, without significant negative impacts on return.

This lack of correlation stems from the fact that managed futures draw their returns from different sources than traditional stock and bond investments. Consequently, managed futures can often return positive returns while stock and bond markets tank.

References

External links

• Investopedia Article on Managed Futures
• Commodity Futures Trading Commission web site
• ITR P-40 CTA Index - An Index Representing the Performance of the Managed Futures Industry
• Summary of studies