REDUCED PORTFOLIO VOLATILITY RISK
The primary benefit of adding a managed futures component to a diversified investment portfolio is that it may decrease
portfolio volatility risk. This risk-reduction contribution to the portfolio is possible because of the low to slightly nega-
tive correlation of managed futures with equities and bonds. One of the key tenets of Modern Portfolio Theory, as devel-
oped by the Nobel Prize economist Dr. Harry M. Markowitz, is that more efficient investment portfolios can be created by
diversifying among asset categories with low to negative correlations.. Jack Meyer, of the Harvard Management Company,
has gone as far as to state “They're the most diversifying asset in the portfolio.” (November 1996, Wall Street Journal).

POTENTIAL FOR ENHANCED PORTFOLIO RETURNS
While managed futures can decrease portfolio risk, they can also simultaneously enhance overall portfolio performance.
For example, the “Correlation of Selected Asset Classes” chart (below) shows that adding managed futures to a traditional
portfolio improves overall investment quality. This is substantiated by an extensive bank of academic research, beginning
with the landmark study of Dr. John Lintner of Harvard University, in which he wrote that “the combined portfolios of
stocks (or stocks and bonds) after including judicious investments… in leveraged managed futures accounts show sub-
stantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone.” Fur-
ther, an independent study published by the Chicago Mercantile Exchange points out that a stock and bond portfolio di-
versified with only 20% in Managed Futures could increase overall performance as much as 50% with comparable risk.

EASE OF GLOBAL DIVERSIFICATION
The establishment of global futures exchanges and the accompanying increase in actively traded contract offerings (see
“Worst Case Decline” chart) have allowed trading advisors to diversify their portfolios by geography as well as by product.
For example, managed futures accounts can participate in at least 150 different markets worldwide, including stock in-
dexes, financial instruments, agricultural products, precious and nonferrous metals, currencies, and energy products.
Trading advisors thus have ample opportunity for profit potential and risk reduction among a broad array of non-
correlated markets.

ABILITY TO PROFIT IN ANY ECONOMIC ENVIRONMENT
Managed futures trading advisors can take advantage of price trends. They can buy futures positions in anticipation of a
rising market or sell futures positions if they anticipate a falling market. For example, during periods of hyperinflation,
hard commodities such as gold, silver, oil, grains, and livestock tend to do well, as do the major world currencies. Dur-
ing deflationary times, futures provide an opportunity to profit by selling into a declining market with the expectation of
buying, or closing out the position, at a lower price. Trading advisors can even use strategies employing options on fu-
tures contracts that allow for profit potential in flat or neutral markets

.