| Managed futures refer to the active trading of forward and futures contracts on physical commodities, financial assets, and currencies. The hedge fund industry advocates the use of managed futures as a means to enable investors to profit from price volatility. Portfolio managers claim managed futures have no correlation to traditional investments, such as stocks and bonds, and therefore provide much-needed diversification. Due to extreme price volatility, however, many believe managed futures present an unacceptable level of risk not justified by its return.;The results of this study could not determine if the ITR Premier-40 CTA Index provides an increased risk-adjusted return when included in a stock portfolio. However, this study did find the CTA Index does generate alpha in a stock portfolio, implying performance persistence in managed futures due to the skill of individual fund manager.;This study attempts to present new evidence of the impact of the addition of managed futures to a stock portfolio. Specifically, this study seeks to determine the effect of an increasing incremental addition of the International Traders Research Premier-40 CTA Index on a market portfolio as represented by the S&P 500 Total Return Index. The data set of managed futures and stock market returns is analyzed for the period of January 1990 to December 2007. |
