Managed Futures or Commodities: Between a Rock and a Hard Place

Between a rock and a hard place.

Ever notice how easily investment professionals conflate the words “commodities” and “futures”? The trouble is, regardless how knowledgeable an allocator, the word “commodities” conjures images of mad dog oil traders, tinfoil hat gold bugs, the Hunt brothers cornering the silver market, and Dan Aykroyd and Eddie Murphy trading orange juice.

The words and images you choose matter. Think carefully about how your investors will interpret them, consciously and subconsciously.

Managed futures as a trading asset typically involves much more than physical commodities. While it is good practice to “mirror” the vocabulary of your audience, it’s best to steer clear of words that don’t represent your system. So during conversation with your investors, when the word “commodities” comes up, clarify: are we talking about commodities specifically or futures in general?

Images matter too. Unless you focus specifically on agriculture futures, a beautiful photo of undulating wheat would not be the best choice. Same goes for oil rigs and bars of gold: they will raise the specter of commodity-related risk. Is it fundamental to your business story to be seen as a frenzied trader? If not, pictures of the pandemonium of commodity trading pits don’t convey the right message.

“Futures” is also lumbered with a reputation for risk, but when we find ourselves between Scylla (“Futures”) and Charybdis (“Commodities”) I suggest following Odysseus’ lead and go with Scylla. Even then, futures can be presented simply as a mechanism for trading a diverse range of asset classes, not the core feature of what you do.

In the UK, systematic traders typically avoid using “commodities” (and CTA / CPO) and “managed futures” altogether, preferring instead terms like “systematic investment manager”. I think this is a good way to go but we can still do more to tell the story.

➤ Let me know what you think, pro and con. If you want to discuss your messaging in more detail reach out to me via LinkedIn.

Pic:

• Balanced Rock, Arches NP By Ian Rayner
• Naruto Whirlpool By Hellbuny (Own work), via Wikimedia Commons.