Your clients may balk when they hear "futures" - accusing you of straying into a fantasy of an asset class that solves all our problems. Yet finance professionals have used managed futures for decades to boost the performance of stock and bond portfolios. Futures are a rich tool for diversification, offering more than 150 global markets, from grains and gold to currencies. This asset class is uncorrelated to all others, including real estate and private equity, as well as U.S. stocks and bonds, says Robert Lindner of Lindner Capital Advisors in Marietta, Ga.

Many investors diversify further by using more than one trader, each with a distinct approach. Called commodity trading advisors-a name left over from the days when they focused on commodities-their performance varies greatly. But grouped together, commodity trading advisors have a long and healthy record: From January 1980 through November 2010, the Barclay CTA Index had an average annual return of 11.5%, compared with 7.9% for the S&P 500. The correlation? Just 0.01. The CTA Index is also less volatile than stocks.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access