It has been a projection of certain professionals that by 2021, managed futures industry will have attained three trillion US dollars in assets under management. Its growth has been seen as a double-edge sword, bringing with it opportunities as well as challenges. There will be new introducing brokers that will prosper in this new environment – but also quite a number will fail to adapt the world.
Key factors likely to fuel managed futures growth
Investor demand for managed futures continues to rise
It’s obvious that stock market alone is not enough to quench investors’ growing craving for a truly diversified asset class. As the truth about stocks unfolds and investment and “diversification” professionals recognize the fact that modern portfolio theory is only applicable to truly uncorrelated investment vehicles, demand will heighten. This leaves managed futures as the only viable and logical choice.
Taking a look back, we can’t fail to recognize that the remarkable 700% growth in managed futures was due to investors who in most cases, were forced to shun their financial advisors and instead seek direct consultation with CTAs. This explains investors’ strong desire to establish equity neutral portfolios. As the awareness for managed futures as an alternative investment vehicle and the message of “equity neutral” becomes more commonplace in the media, there is a possibility that demand could grow a notch higher. Even though past performance is not necessarily indicative of future performance, projecting the past dramatic rise of managed futures into the future gives it a magnificent look- quite an enticing to an investor’s eyes.

Demand for Financial Advisors

Majority of responses received by the book ‘High Performance for Managed Futures’ came from financial advisors. All of them had one thing in common- it is hard to access the investment and the existing mutual funds with solid track records aren’t that thrilling. Direct accounts funds have exceeded to a higher extent the average outcome an investor could get in fund product funds, an issue pointed out in page 17 of the book under the title “Wall Street’s Motivation for Keeping Managed Futures a Secret” -a resourceful information introducing brokers should grasp in order to compete.
Currently, the total percentage of portfolio used by traditional financial advisors (stock brokers) on options and futures are less than one percent. By the time this absurd low percentage will start to change, assets under management will greatly be affected. Suppose financial advisors would allocate about 20% of their clientele assets to managed futures as per their clients request then the industry growth could be an exponential one. This acceptance of managed futures by traditional stock market dedicated advisors is a competitive threat but also widens the embrace of managed futures as an asset class.

Ease of Access to Managed Futures

Access to managed futures has been demanding. From Wall Street’s point of view, we are currently under the worst-case scenario. It hasn’t been easy for financial advisors to appropriately access managed futures and instead resorted to soil true diversification using the asset class, terming it as a very “risky” undertaking. The moment advisors’ difficulty to access the asset class will be overcome and equity world acknowledges the importance for true diversification, equity wire houses and dealer brokers will conduct the revenue math and an explosive growth will be realized in managed futures industry. While it will be thrilling to be in the epicenter of managed futures industry, the truth is that financial advisor’s interest in managed futures will definitely bring about stiff competition.