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COMMODITIES CORNER

Managed Futures for Microcap Investors T

here is both academic and practitioner research literature that discusses the use case of managed futures as potential benefits when employed with large cap equity indices, such as the S&P 500 index (SPX) for portfolio allocation. However, there is very little, if any, literature DEFINITIONS discussing the comparison of microcap indices to managed futures. In researching these Microcap stocks are defined as firms with market capitalization between $50 twoThe investments, the results demonstrate 4) correlation difference is more pronouncedain low the three-year rolling correlation chart (Figure 2) as it filters out some of the shorter-term noise of the one-year rolling correlation. Except for 2 how managed futures may be a beneficial million and $300 million. Managed futures the downward correlation spike in 1999/ early 2000s, the correlation between micro and large managers trade the futures allocation to a microcap cap remained relativelyportfolio. consistent over the lastare fewprofessional decades and more so who in roughly last 15 years. The chart also supports evidence of thecontracts, diversification of managed futures to microcap options on futures contracts and stocks.

Figure1:1:One-Year One-YearRolling Rolling Correlation Figure Correlation Micro to CTA

1.00

Micro to SPX

0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80

n BY MARK SHORE, MBA

42

MicroCap Review Magazine

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6/1/2015

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-1.00

Source: Bloomberg data Source: Bloomberg data www.stocknewsnow.com

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