MANAGED FUTURES AS AN ASSET CLASS

                                   MANAGED FUTURES AS AN ASSET CLASS

        By year-end 1996 almost $30 billion was invested in the managed futures industry, a nearly 60-fold increase since 1980 (see Chart 1).1    This paper evaluates the performance of managed futures investments, both as "stand-alone" assets and portfolio assets in diversified stock and bond portfolios during the period 1982 through 1996, virtually the entire life of the managed futures industry.  A general conclusion of the paper is that some types of diversified managed futures investments have consistently provided higher risk- adjusted returns than have diversified stock and bond portfolios, and that including managed futures investments in diversified asset portfolios can significantly enhance the performance of such portfolios.

        The term "managed futures" refers to the various institutional (or legal) investment vehicles that provide professional money management to investors who wish to participate in “commodity” markets, which includes the trading of futures, forward, and option contracts on both physical commodities and financial instruments.   Three managed futures investment vehicles are currently available.2   First, investors can purchase the shares of public commodity (futures) funds, which is similar to buying shares in a stock or bond mutual fund, except that the fund buys and sells commodity futures and forward  contracts rather than stocks and bonds.