Growth in Alternative Assets with a Futures Strategy and commodity strategy

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    Jan 09, 2013
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An annual survey published by MornigstarInc, a leading provider of independent investment research, and Barons, the financial magazine published by Dow Jones & Co, showed continued growth of alternative investments by institutions and financial advisors.

Since the 2008 crash investors have pulled their money from the equity markets due to uncertainty of economic conditions in the U.S and the possibility of a double dip recession. Investors would rather earn no interest with their bank rather than potentially lose more than they already have in the equities. The U.S. economy is finally looking better with growth the GDP and unemployment slowly coming down, but what about Europe?

Investors may have begun to reinvest in the U.S. equity markets but what are they doing to protect themselves against the effects that Europe will have on our markets? The current situation across the Atlantic is a complete mess. Greece, Ireland, Spain, and Portugal are on life support from the EU but in reality they are being uplifted by Germany. At what point will Germany decide they can’t afford to bail out anyone else? When will Germany decide they are better off letting them fail and removing them from the EU? Whatever happens here it will continue to create uncertainty in financial markets around the world. So what should investors do?

Alternative assets are assets that have not been traditionally considered part of a portfolio and are used to diversify a portfolio. Managed Futures are an alternative asset class that has traditionally showed little to no correlation between stocks and bonds. What does this mean? If an investor has a downturn in their stock portfolio that doesn’t mean they necessarily had a downturn in their managed futures account. Managed futures have been profitable during market downturns and have allowed for higher overall returns and smaller drawdowns in an investment portfolio. Managed futures are one commodity strategy that gets direct exposure to commodity prices and is highly liquid.  Advisors cited managed futures as the asset to which they were most likely to increase their exposure. Investors are getting exposure based on the >futures strategy which is different between managers and should be chosen based on the risk the investor is seeking.

Managed Futures may be thought of as an asset class reserved for the ultra-rich but part of the reason they have seen such large amount of growth is because they are accessible for a large amount of investors. Many experts recommend allocating 10-20% of an overall portfolio to alternative assets, so if you have a $250,000 portfolio managed futures are accessible with account minimums as low as $20,000. Commodity trading companies all have specific minimum investment requirements and are based on the amount of margin necessary for their commodity strategy.

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