Commodities for Every Portfolio: How You Can Profit from the Long-Term Commodity Boom

Chapter 10

A Managed Approach: Managed Futures

There is only one side of the market and it is not the bull side or the bear side, but the right side.

—Jesse Livermore

Some investors prefer a more managed approach to the commodity futures markets than self-directing their investments. While they understand the basic strategies, concepts, and benefits of commodity futures, they would much rather gain access to the futures market through a professional money manager who will monitor their account on a daily basis, come up with the actual trades, and implement the necessary risk management strategies. If you fall in this camp, managed futures can provide you with this opportunity. In addition, managed futures provide all investors with an alternative investment that can enhance portfolio returns, lower overall portfolio risk, and even make money in both up and down markets.

In this chapter I introduce an actively managed approach to the commodity markets and to a relatively new asset class that has grown considerably over the last 30 years. I look at the characteristics that make up the managed futures industry, the benefits of managed futures as an asset class, and the pivotal steps that you need to take in order to find the right manager for your portfolio.

Growth of Managed Futures

The term “managed futures” refers to an industry that is made up of professional money managers, known as commodity trading advisors (CTAs), who trade client accounts from a discretionary basis. At first ...