Patience necessary for managed futures

Financial advisers considering managed-futures strategies for their clients should be prepared to hold the investment for a few years.

“If you allocate to managed futures, you need to have a time horizon of two or three years if you want to minimize the chances of it having a negative impact on the portfolio,” said Norman Mains, chief risk officer at Forward Management LLC.

“Managed futures have risk-return characteristics that are similar to equities but have a low correlation to both equities and bonds,” he said.

Mr. Mains was speaking last week in Chicago as part of the InvestmentNews Alternative Investments Conference.

Fellow panelist Ranjan Bhaduri, chief research officer at Alpha-Metrix Alternative Investment Advisors LLC, concurred with the time horizon issue but also stressed the need for extensive due diligence.

“From a regulatory perspective, some of the problems we’ve seen in the managed-futures space will make the industry stronger, because it is a situation where we have tools in place, and I think the regulators want to start using them,” he said.

Ultimately, the extra emphasis on due diligence is usually worth the effort when it comes to managed futures, Mr. Bhaduri said.

“One thing history has taught us is that nobody has a crystal ball, and the only thing we really know is that diversification wins,” he said.

The panelists agreed that an allocation to managed futures as a portfolio diversification tool should be between 10% and 20%, with allocations across multiple managers.

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