Chapter 4

Managed Futures

A Zero-Sum Game?

For many, managed futures remain somewhat on the border of asset management. In the past 20 years, managed futures have grown from less than 25 billion to approximately 300 billion assets under management (AUM). Although the growth has been substantial, managed futures have low AUM relative to other alternative asset classes such as hedge funds. There are various reasons for this. First, the name itself is somewhat confusing. Although the term managed futures brings to mind someone who manages futures contracts for profit, most managed futures traders have, for years, been referred to as commodity trading advisors (CTAs). This is somewhat unfortunate, because even though some managed futures traders do not even trade commodity-based futures contracts, many investors are reluctant to invest in a strategy that implies heavy concentration in commodity-based futures contracts, which they regard as inherently risky.

The nomenclature, commodity trading advisors, is partially caused by the fact that until the 1970s, active futures traders had to trade commodities, because financial futures contracts such as currency futures, financial futures, and equity futures did not exist. Currency futures began trading in the early 1970s, after the U.S. dollar went from fixed to floating. In the mid-1970s, interest rate futures began trading (primarily short-term instruments such as U.S. Treasury bills); and by the late 1970s, long-term U.S. government bond ...

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