One sector that has proved a bright spot in this ugly market is worth the attention of financial advisors and wealth managers: managed futures.  Managed futures are the second-best performing hedge fund strategy in the Credit Suisse/Tremont Hedge Fund Index, delivering 15.6% returns through November.  Only dedicated short bias funds performed better (up 16.8%).

For the most part, managed futures are available only through hedge funds and separately managed accounts.  These funds are open to accredited investors, who must have an income of $200,000 and net worth of $1 million. Separately managed accounts are usually prohibitive for retail investors since most programs, especially higher quality ones, come with high minimum investments — some as high as $10 million.   

In the mutual fund world, only the Rydex Managed Futures Strategy (RYMTX), launched in 2007, falls into the managed futures category, and it carries a mere $1,000 minimum investment for retirement accounts and a $2,500 minimum for other account types.  The Rydex fund has returned 11.2% this year, through November, compared to -37.7% for the S&P 500 for the same period.

While the hedge fund industry has experienced net outflows, the managed futures strategy has seen positive inflows even during months of negative performance, according to Credit Suisse.

Managed futures can go long or short in futures contracts, including metals (gold, silver), grains (soybeans, corn, wheat), equity indices (S&P futures, Dow futures), soft commodities (cotton, coca, coffee, sugar), and both foreign currency and U.S. government bond futures. Managed futures consist of assets like financials, interest rates, currencies, and commodities, whereas commodities indices for the most part invest in physical commodities and have no financial exposure. Money managers who oversee managed futures funds are known as commodity trading advisors, or CTAs.

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