Managed futures should make up a significant proportion of an investor’s overall portfolio and are likely to outperform equity markets on a ...

Managed futures should make up a significant proportion of an investor’s overall portfolio and are likely to outperform equity markets on a long-term basis, argues a major investment expert. “People are saying managed futures' ability to make money has gone,” said Ernest Jaffarian, the founder of Efficient Capital Management, a US-based alternative investment firm, at a recent conference in London. He added: “But over the past 25 years, managed futures have made more money ... It takes patience. You won't get immediate gratification ...commodity trading advisers (the name often used by investors for managed futures) have a better risk profile.” Managed futures traders bet on the likely direction of currency, bond, equity and commodity markets through the use of futures contracts. Trades are often initiated on buy and sell signals generated by computer models, based on technical analysis of historical price movements and other indicators. “Managed futures are the least understood asset class among professional advisors,” Mike Azlen, chief executive of Frontier Capital Management, a London-based asset manager, told WealthBriefing. He added: “Empirical studies have indicated that managed futures are perhaps the best diversification tool for a portfolio containing equities and bonds. “Over the past two years, there has been large growth in assets under management of managed futures, which have grown from $50 billion in 2002 to over $130 billion today.” Mr Jaffarian believes that managed futures should constitute at least 10 per cent of a broadly diversified investment portfolio. However, he was keen to emphasise the distinction between managed futures, which trade on margin and keep large reserves of cash, and hedge funds, which can borrow heavily to fund their investment activities, incurring interest payments at the same time. “Hedge funds need capital…don't throw them (managed futures) into the hedge fund space,” said Mr Jaffarian. Efficient presently allocates more than $600 million in tradable assets for a variety of global private bank, insurance company, funds of funds and private investor clients.