BOSTON (TheStreet) -- Stocks, bonds and cash have long been the holy trinity of retirement plans. Anything more exotic -- alternative investments such as commodities or currency plays -- has been frowned upon as too volatile.
That once sage advice is being put to the test by the growing popularity of ETFs and mutual funds offering retail investors access to assets that have traditionally been beyond their reach.
Certain commodities have always found their way into retirement plans, despite well-meaning advice against them. Many IRAs are structured to allow the direct holding of gold and silver, for instance, and specialized IRAS can also be created exclusively for precious metals. Self-directed IRAS have also been a way for individual investors to have greater access to alternative investments, including commodities, REITS and even new or expanding businesses.
The rise in recent years of Exchange Traded Funds, index-pegged market baskets of commonly themed assets, has made it even easier to add nontraditional assets. Popular choices, on the commodity front, are the standbys of the
iShares Silver Trust ETF
SPDR Gold Trust ETF
. Other commodities are represented, including cotton with the
iPath Dow Jones UBS Cotton Total Return Subindex ETN
and sugar in the
iPath Dow Jones UBS Sugar Total Return Subindex ETN
On New Year's Eve,
, an alternative asset manager, launched MutualHedge, the first mutual fund to provide investors exposure to an actively managed portfolio of multiple managed futures investments.
The fund is available through
and LPL Financial investment platforms, among others, as
MutualHedge Share Class A
MutualHedge Share Class C
Equinox president and CEO Robert Enck explains that the fund was designed to provide diversification away from long-only stock and bond funds to include global commodities, currencies, indices and interest rates in their portfolio.
"One of the key things we try to do is to bring asset classes that have historically been the domain of institutions, including managed futures, to individual investors," he says.
Professionally managed futures are an investment vehicle using the commodity futures and options markets in an attempt to capitalize on a rise or fall in commodity prices. Commodity Trading Advisers manage assets by going long or short in futures contracts in areas such as metals (gold, silver), grains (soybeans, corn, wheat), equity indexes (S&P futures, Dow futures, NASDAQ 100 futures) and soft commodities (cotton, cocoa, coffee, sugar). Foreign currency and U.S. government bond futures are often included as well.
The touted benefit is that, as an asset class, managed futures programs are largely non-correlated with stocks and bonds and therefore offer needed diversification to a portfolio.
Enck called 2008 a "banner year" for managed futures."They really did what they were supposed to do," he says.
Even though 2008 was a rough year for stocks (down 37%) and commodities (which fell 46%), managed futures were up between 14% and 18%, according to the
Credit Suisse/Tremont Managed Futures Index
Barclay CTA Index
. Managed futures have outperformed equities over the past 10 years with an annualized rate of return of 7.4%, compared with an annualized rate of return for the
of negative 1%.
Since 1980, the equities markets have gone down 33 times by 5% or more; 26 of those 33 times, managed futures have gone up.
"What that really tells us is that managed futures have historically not been correlated to the returns of equities," Enck says. They've also done well in bull markets.
"More than 60% of the time, when equities are up, managed futures are up. And most of the time when equities are down, managed futures are up," he says.
Alternative investments do have a place in the average portfolio or IRA, Enck says.
"Investors have realized that diversification is an important component to their portfolio management," he says.
Unlike straight commodity plays, managed futures bring geographic and sector diversification to the table, in addition to the ability to go long or short.
"Diversification now means a healthy allocation to alternatives," Enck says. "A large number of broker dealers have embraced managed futures and putting managed futures into their clients' portfolios. Typically, the long-only commodity plays have been highly volatile funds, and that type of volatility is generally not well-received by most individual investors. Managed futures, historically, have provided a much smoother ride."
-- Written by Joe Mont in Boston.
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