Numerous academic studies have demonstrated the potential benefit of integrating managed futures programs within stock- and/or bond-based portfolios to enhance returns through broad-based diversification. The elemental principles of proper portfolio diversification are embraced in what has come to be known as “Modern Portfolio Theory.”

Managed futures have been documented as investment vehicles offering relatively low levels of correlation when compared with the performance of equity and fixed income investments. In fact, one of the most uncorrelated of investments is managed futures programs under the direction of professional money managers, aka CTAs.

The value of professionally managed futures within the context of a well-balanced investment portfolio was thoroughly researched by Dr. John Lintner, of Harvard University, in his 1983 landmark study, “The Potential Role of Managed Futures Accounts in Portfolios of Stocks and Bonds.” According to Lintner, “…the combined portfolios of stocks (or stocks and bonds) after including judicious investments...in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone.  Lintn-

er’s work demonstrated how managed futures can potentially decrease portfolio risk while, simultaneously, enhancing overall portfolio performance. However, there is no guarantee that an investor will receive the same or similar returns trading managed futures as shown below.

The foregoing studies strongly support Dr. Lintner's conclusions. The illustrations below are excerpts taken out of the Modern Portfolio Theory Booklet and attempt to illustrate the benefit of adding managed futures investments in a stock and bond portfolio.