Managed commodity futures, by their very essence, are a diversified investment opportunity. This opportunity provides the investor the ability to trade in over 50 different commodities globally.

A number of these categories can then be further diversified by utilizing numerous trading techniques on each, which will provide the investor endless trading choices, and as a result, increase their returns potential.

The advantages of commodity futures when traded beyond a portfolio, or traded as component of a well-balanced portfolio include things like:

Approach to CommoditiesApproach to Commodities
  • Short term profits. Most, if not all private investors who trade commodities, accomplish this as a speculative investment over the short term, usually no more than 3 months. They are simply participating in the market to take advantage of the expected price increase over a short period of time of that given commodity. They are not getting involved to take delivery. These short term returns are usually attained with seasonal trades, such as unleaded gasoline in the summer and/or heating oil in the winter. Both trades take advantage of the increased seasonal requirements for these commodities during those seasons. Alternatively, short-term returns can also be achieved if there is a known deficiency of a commodity, whether through natural disaster or increased demand, which creates inventory restrictions.
  • Opportunity to balance a portfolio's volatility risk. This balancing of the portfolio is possible due to the low, to somewhat negative correlation of managed futures with equities, shares, stocks and bonds.
    One of the key tenets of Modern Portfolio Theory, as developed by the Nobel Prize economist Dr. Harry M. Markowitz, is that more effective investment portfolios can be generated by diversifying among asset groups with low to negative correlations.
  • Opportunity to improve diversification. Adding managed futures to a traditional portfolio improves general diversification of investments. This is substantiated by an extensive array of academic study, starting with the landmark study of the late Dr. John Lintner of Harvard University. Lintner wrote that, "The combined portfolios of stocks, after including judicious investments in leveraged managed futures accounts, show substantially less risk at every possible level of expected return than portfolios of stocks alone." Lintner's research was confirmed by a 12-year study of managed accounts records.
  • Ability to profit in any economic environment. Managed futures investors can make the most of price trends. They can buy futures positions in anticipation of a rising market or sell futures positions if they expect a falling market. For example, during periods of runaway inflation, hard commodities such as precious metals and livestock investments, have a tendency to do well, as do the major world currencies. During deflationary periods, futures provide a chance to profit by selling into a receding market with the expectation of buying, or closing out the position at a lower price. Trading advisors more than often recommend investors to use strategies employing 'options on futures contracts' that enable profit potential with far more limited risk than that associated with futures.
  • Opportunity to participate in global market investments. Managed futures investors can easily partake in at the very least 50 separate commodities globally, including energies, cereals, livestock, precious and non-ferrous metals, and currencies. In contrast to stocks, where the investor is dependent upon a specific company, in a specific sector and market to perform, commodities have sufficient opportunity for profit potential and risk minimization in a broad array of non-correlated sectors and markets.

Add to this that each commodity has its own set of distinct fundamentals determining its price movements, further increases these investment opportunities in the global markets.

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