CARAT CAPITAL LLC
Managed Futures, a Good Diversifier
Past performance is not necessarily indicative of future results. An investment in futures can result in losses.
CARAT CAPITAL LLC Managed Futures, a Good Diversifier
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Past performance is not necessarily indicative of future results. An investment in futures can result in losses. |
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It should be noted that an investment in hedge funds or managed futures is not for everybody. Investors should: (1) always understand the investment they are making, and (2) realize that there is risk of loss in a futures investment. This notwithstanding, futures markets are tremendous diversifiers for traditional portfolios of stocks and bonds. The economic function of financial assets, such as stocks and bonds, is that of "capital formation." On the other hand, the economic function of futures markets is that of "risk transfer." As a result, we would expect little or no correlation of returns between financial assets and the futures markets. We believe that managed futures is one of the most interesting subsets of HEDGE FUNDS. |
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| In fact, that is exactly what we have observed in the "real world." Stock and bond returns have little to do with managed futures returns. Indeed, there are certain events which are profitable for futures investors -- but lead to losses in the stock and bond markets. Note that the energy crisis in 1973-1974 caused stocks to decline by almost 50% -- but resulted in good profits in the futures markets. As a result, an investment in managed futures can help to smooth the growth of one’s portfolio. | ||