Managing Downside Risk With Upside Volatility: Enhancing The Performance Of An Investment Portfolio With Managed Futures

Abstract

Managed futures refer to the active trading of forward and futures contracts on physical commodities, financial assets, and currencies. Since managed futures have little to no correlation with stocks and bonds, advocates claim this asset class provides much-needed diversification, allowing investors to profit from price volatility. However, naysayers believe this volatility makes managed futures a highly risky investment. Do the unique features of this asset class make it worthy of inclusion in an investment portfolio? This article asserts managed futures provide investment managers a powerful tool to manage downside risk by capitalising on upside price volatility.