As a strategic core holding, managed futures may provide overall portfolio risk diversification.
With its income enhancement features and its low or negative correlation to stocks, it’s fair to ask where an allocation to managed futures might come from. The answer, logically, is from both the equity and fixed income portions of an investor’s portfolio.
Adding a modest 10 percent allocation to a traditional “60/40” portfolio would require proportional reductions in the equity and fixed income sides. That means reducing the equity side to 54 percent (a reduction equal to .60 x .10) and a diminution to 36 percent (lessened by .40 x .10) on the fixed income side.
A more definitive 20 percent commitment to managed futures would transform a “60/40” portfolio into a “48/32/20” mix.
Altegris believes that carving out and maintaining a 20 percent allocation to managed futures, represented by the SG Trend Index, would have likely enhanced a classic/traditional portfolio, potentially boosting returns and dampening volatility over the past two decades.
MANAGED FUTURES IN A TRADITIONAL PORTFOLIO
JANUARY 2000 – SEPTEMBER 2016
|Annualized Standard Deviation
Source: Barclays, Bloomberg
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. The total return of an investment is only one measure of performance. Performance should never be the sole consideration when making an investment decision. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses. The referenced indices are shown for general market comparisons and are not meant to represent any particular Fund. An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the performance data presented. Stocks represented by the S&P 500 Total Return Index; Managed Futures represented by the SG Trend Index, Bonds represented by the Barclay’s US Aggregate Bond Index.
TIME PERIOD: JANUARY 2000–SEPTEMBER 2016; date range based on common period of data availability. This is a hypothetical illustration. Past performance is not indicative of future results. There is no guarantee that any investment will achieve its objectives, generate profits or avoid losses. The above is not intended, and should not be construed as asset allocation advice. Managed Futures may not be suitable for everyone. These allocations are based on Altegris’ views about what historically constitutes a traditional portfolio and how it can be further diversified by adding an allocation to managed futures. Returns are represented by benchmark indices for general market comparisons and are not meant to represent any particular investment. An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the performance data presented.