A Well Balanced Portfolio
A well balanced managed futures portfolio can provide a diversified global investment opportunity for investors.
The main benefits include:
- Opportunity to reduce the volatility risk of a portfolio
- Opportunity to enhance a portfolio’s returns
- The ability to profit in both rising and falling markets
- The opportunity to participate in global markets
- The Opportunity for Risk Reduction through Diversification
The Ability to Profit in Any Economic Environment
1
Commodity Trading Advisors can take advantage of price trends regardless of whether the market is rising or falling. For instance, if they feel that the markets have the potential to rise then they can buy in anticipation of a price increase. Conversely, if they anticipate the market to fall then they can sell short.
There is no restriction on short selling in the futures market as in the stock market.
2
Although losses occur in managed futures, managed futures investors can profit in many different types of economic environments. This is partly because the futures markets are diverse and often exhibit independent price movement.
3
During periods of hyperinflation, hard commodities such as precious metals, energies, grains, livestock, and currencies often do well. Although past results are not indicative of future results during deflationary times, the futures markets can provide an opportunity to profit by selling short in a falling market with the expectation of buying back the position at a lower price. CTAs can also use sophisticated spread strategies that combine futures and options on futures positions in an attempt to profit during periods of flat or neutral markets.
The Ability to Participate in Global Markets
With the expansion of global futures exchanges, CTAs can now diversify their clients’ portfolios by geography as well as by market sector. Investors can participate in at least 150 worldwide futures markets trading a variety of products including financial instruments, stock indexes, precious metals, agricultural commodities, tropical products, currencies, and energy products. Although losses may occur Trading Advisors have many possible opportunities to profit from the broad array of non-correlated markets. Increased market volume and liquidity makes the markets more attractive as market efficiencies improve. CTAs offer investors benefits similar to those experienced with mutual funds and other investment advisors.
Benefits include:
- Full-time commitment to the markets and their trading programs
- A disciplined trading approach
- Risk management strategies that attempt to control losses and protect profits
- Trading and risk management strategies that endeavor to balance risk with reward
Investment Considerations
Tax Advantages of Futures Investments
- The taxation of commodities investments, i.e. trading futures, is much different than that of securities.
- The main difference being that futures gains or losses are taxed as of the end of the year, whether you actually got out of the investment or not in that year.
- Any gains and losses are treated 60% long term and 40% short term regardless of holding period.
- No Trade by Trade Accounting
- Losses Carried Back 3 Years No Wash Sale Rules
Tax law is complex, and regulated futures and options contracts even more complex. - You should always consult your tax advisor with specific questions