Managed Futures: Are They Right for You?

Returns on managed futures are appealing, but investors may want to look before they leap.

A managed future is like a mutual fund, except instead of stocks or bonds, it holds futures contracts and similar securities. Managed futures are overseen by commodity trading advisors (CTAs).

Managed futures may seem to offer solid returns in any economic environment. The Barclay CTA Index of managed futures rose 14% in 2008, beating the S&P 500 index by leaps and bounds. It has gained an annual average of 12.2% since 1980, losing money in only three of those calendar years.1

But are managed futures right for you? Probably not. Here’s why:

•    Performance may not be as good as it seems: The historical performance of managed futures is based only on the results of those managers who choose to report their returns to industry databases, meaning the worst funds may not get into indices.

•    Fees are high: You may have to pay an introducing broker to get into a managed future. Once in, managed futures charge a management fee, plus a percentage of any “new new profits.” All told, the fees can reach 6% to 8% annually.

If you’re looking for an alternative investment strategy, we recommend you contact your financial advisor, who can point you in a suitable direction.

1Index returns assume reinvestment of all distributions and do not reflect fees or expenses. It is not possible to invest directly in an index.