Studies supporting Managed Futures

Independent research presents a well-supported case for diversifying an investment portfolio with managed futures. One of the most attractive features of managed futures is the ability to add diversification to an overall investment portfolio. This ability has been documented in several studies. According to one such study conducted by the Chicago Mercantile Exchange:

“Portfolios with as much as 20% of assets in managed futures yielded up to 50% more than a portfolio of stocks and bonds alone.”

Another Chicago Board of Trade study shows a portfolio with the greatest returns and least risk comprised 45% stocks, 35% bonds, and 20% managed futures, while a portfolio exhibiting the greatest risk and least returns comprised of 55% stocks, 45% bonds, and 0% managed futures.

On August 11, 1999, a five-year study was published in the Wall Street Journal, concerning the 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 brokerage houses. The firm with the best asset allocation performance records was Goldman Sachs. Why? They were the only stock firm to include futures in their asset allocation.

Goldman Sachs and Morgan Stanley recommend up to 15% of an investment portfolio into managed futures.

Prof. John K. Linter of Harvard University presented a landmark paper, “The Potential Role of Managed Commodity-Financial Futures Accounts (and/or Funds) in Portfolios of Stocks and Bonds,” to the Financial Analysts Federation.

The research paper stated that “the improvements from holding an efficiently-selected portfolio of managed accounts or funds are so large, and the correlation between returns on the futures portfolios and those on the stock and bond portfolios are so low (sometimes even negative), that the return/risk tradeoffs provided by augmented portfolios…clearly dominate the tradeoffs available from portfolio of stocks alone or from a portfolios of stocks and bonds.”

The ability of futures to enhance the returns of traditional investments has been documented in a study conducted by Goldman Sachs. Covering a 25-year period, the study concluded that by “allocating only 10% of a securities portfolio to commodities, investors can vastly improve their performance.”

This report was originally posted by Wisdom Financial.