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AMERICAN NATIONAL TRADING |
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BENEFITS OF MANAGED FUTURES "More efficient investment portfolios can be created by diversifying among asset categories with low to negative correlations.” -Dr. Harry M. Markowitz, Nobel Prize Economist. Seven Benefits of Managed Futures 1. Potential for enhanced portfolio returns. 2. Liquid markets facilitate easy entering and exiting of market positions. 3. Transaction costs are lower then those for comparable cash market transactions. 4. Opportunity for reduced portfolio risk. 5. Ability to profit in any economic environment. 6. Opportunity to participate easily in global markets. 7. Managed Futures offer potential tax benefits versus stocks. There is a substantial risk of loss in trading commodity futures, options and foreign exchange. Potential for Enhanced Portfolio Returns • Adding managed futures to a traditional portfolio improves overall Investment quality.
Graph exhibited in 2003 edition of “Portfolio Diversification
Opportunities”, published by CBOT.
Source: Barclay Trading Group
Ltd., Managed Futures: Barclay CTA Index; Bonds: Lehman Brothers
Long-Term Treasury Index; Stocks: S&P 500 Total Return Index
Past performance is not necessarily indicative of future results. • This study suggests that the portfolio with the greatest returns and least volatility included Managed Futures.
Liquid Markets Facilitate Easy Entering and
• Large trading volume on regulated exchanges allows speculators and hedgers to buy and sell large numbers of contracts easily. • This liquidity minimizes any adverse disruption of price in the marketplace.
Reduced Portfolio Volatility Risk • Managed Futures have demonstrated the potential for limiting portfolio risk. • Risk reduction is possible because of the low to slightly negative correlation of managed futures with stocks and bonds.
• As this study shows, there is very little relationship in the price movement (correlation) between stocks, bonds, and Managed Futures. Ability to Profit in Any Economic Environment • Buy futures positions in anticipation of a rising market. • Sell futures positions in anticipation of a falling market. • The potential to profit in inflationary or deflationary periods. • CTAs can also use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets. Ease of Global Diversification • CTAs can diversify their portfolios by geography through at least 150 worldwide markets including stock indices, financial instruments, agricultural and tropical products, precious metals, currencies, and energy products. • Global markets create ample opportunity for profit potential and risk reduction through a broad array of non-correlated markets. Tax Benefits • Managed Futures offer potential tax benefits versus stocks. • According to the Tax Act of 1981, short-term profits in futures are treated as 60% long-term (therefore being subject to a maximum tax of 15%), and 40% short-term (normal taxable income). On the other hand, short-term trading profits in stocks (stocks held less than one year) are treated as 100% short-term.* This favorable tax treatment for futures can translate for those in the upper tax brackets, saving as much as 30% on taxes on short-term gains in futures versus stocks!* Alternative Investments such as Managed Futures are not suitable for all investors. American National Trading recommends Managed Futures should only be used with speculative capital, and that the investment not exceed 20% of investable assets or 10% of a client's overall net worth. *American National Trading recommends reviewing any investment tax consideration with a qualified tax professional. The risk of trading futures, options, and foreign exchange can be substantial. Past performance is not necessarily indicative of future results. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and its accuracy can not be guaranteed. |
