Managed Futures: A Cure for ‘Buy-and-Hold’ Investor Strategies

Does it make good sense to buy a truck load of stocks when sourpuss pundits are negative about the economy?

Stock investor and author Ken Fisher thinks so. In his new book The Only Three Questions That Count, Fisher preaches against listening to the gaggle of grousers who complain that the United States is on the verge of monetary self-immolation.

Instead, forbes Fisher uses the collective voices as a kind of technical indicator: loud, shrill cautionary declarations mean buy, buy, buy.

Boiled down, the message Fisher and Forbes publisher Rich Karlgaard, whose column in the January 29, 2007 issues of his magazine features Fisher’s book, may be this: Don’t listen to what might happen. Watch what the markets are actually doing.

Fisher and Karlgaard may have good reason to crow, if the record highs in the Dow Jones Index mean anything. In spite of growing deficits and a bloated war budget the stock market closed strong in 2006 and has started the New Year in fine style. Who can argue with success? eshop development


I too believe it makes more sense to watch the behavior of price rather than be influenced by the opinions of market sages.

But what are long-term investors to do when dramatic events suddenly reverse market gains? Resist panic, yes. Yet the tech stock downturn in 2000 is a bitter reminder of the inherent risk in stubborn buy-and-hold strategies.

There is a method of investing that allows you to enjoy the long-term gains of a trending market, while at the same time having the flexibility to liquidate short-term positions without serious tax liabilities. (If you buy and sell a stock within 12 months you’ll be taxed at a higher rate than those stocks that are liquidated after a year or more of ownership.)

The method I’m referring to is managed futures.

Managed futures are not new. Investment managers have been using managed futures for more than 30 years to diversify and stabilize portfolios. In recent years, this practice has spread to pension funds, endowments, trusts and banks.

Managed futures have grown as portfolio managers have become more acquainted with futures contracts. Also, investors have insisted on greater access to world markets, usdtocad with more exposure to non-financial sectors, such as agriculture and precious metals.

It is estimated that managed futures reached about $150 billion in the second quarter of 2006 – a 17.62% increase in assets over the previous 12 months. One reason for this incredible growth is independent studies that show managed futures offer far too many benefits for wise investors to ignore:

Reduced portfolio volatility risk

Possible enhanced portfolio returns

Opportunity for gains in any economic environment – and “hard” times are often very good for commodities

Easy access to global markets retroandclassicflixs

Perhaps one of the most significant studies of managed futures was released in 2004 by the Yale International Center for Finance. Authors Gary Gorton and K. Geert Rouwenhorst wrote Facts and Fantasies About Commodity Futures after creating their own commodities index based on returns between July 1959 and March 2004. The authors discovered that between 1962 and 2003, “the cumulative performance of futures has been triple the cumulative performance of ‘matching’ equities.”

The term ‘matching’ equities refers to stocks that are related to commodities. Many investors buy oil and food companies, for example, rather than futures assuming stocks are the safer vehicle. toalla playa

But that fantasy is only one of many that Gorton and Rouwenhorst debunk with facts:

Volatility of the futures they studied was slightly below that of the S& P 500.

Equities have more downside risk than commodities. A stock can shrink to nothing very fast. But commodities like corn, sugar and oil, for example, VPS Hosting will always retain value.

Commodity returns were “negatively correlated” with equity and bond returns. This means that commodities may do very well in the event of a stock market downturn or low interest rates. mrtmediagmbh


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