In February, Claymore Investments announced the launch of the Claymore Managed Futures ETF. The fund is the first liquid, low-cost managed futures fund available to Canadian investors. We spoke to Som Seif, President and CEO of Claymore, about the fund and investing in futures.

Demystifying managed futures

Seif says that for a lot of people, managed futures can sound confusing. But they don’t have to be. He explains that futures are effectively an expected future price for an underlying security, whether that security is an equity, bond, currency or commodity.

“It’s a contract you basically enter into with some counterparty, where you say, ‘Look, either I’m going to buy something from you or sell something to you in some future period—maybe it’s one month from now or six months from now or five years from now—and I’m going to buy it or sell it at some set future price.’”

The investor and the counterparty agree to that set future price, which is effectively negotiated based on expected future movement of the underlying security. Seif offers the example of investing in equities futures. The buyer and seller are essentially saying that the S&P 500 is going to go up or down in one month, and they’re going to set the future price based on that expectation. The buyer will pay that price. Then, in one month, the buyer will receive ownership of that security from the seller.

“That can be done across multiple asset classes,” adds Seif. “Futures are used for equities, bonds, currencies, commodities. In fact, they’re a big part of how to invest in commodities. That’s how most people would invest into those types of markets.”

Managed futures for retail investors

Managed futures strategies have a long track record of above-average returns. They also offer risk-management and diversification benefits. Seif says, “These strategies are becoming more and more prevalent in the hedge fund and high-net-worth environment, but generally they’re not indexed.”

Instead, with institutional and high-net-worth investors, these investments are managed by active money managers using strategies most retail investors don’t have access to.

“What we wanted to do is find a strategy that embodied what some of the best active money managers in the world do in the managed futures space,” Seif says. “We wanted to capture the potential of managed futures strategies and bring it down to a passive, low-cost model. The product that we launched is really very simple.”

The fund tracks the performance of the Guggenheim Managed Futures Index and invests in commodity, currency, equity and fixed income futures contracts. Interested investors, regardless of their net worth, can buy units on the Toronto Stock Exchange.

Managing risk

Most people who invest in managed futures—whether they’re retail, high-net-worth or institutional investors—appreciate that managed futures help them reduce risk in their portfolios.

Seif says some institutions have tried to introduce managed futures strategies that have more risks. “I think that’s less of a value proposition with this type of strategy.”

He adds, “To us, the most important thing in this type of strategy is to have a risk-management focus. The index that we chose to track focuses on managing the risk and reducing risk.”

“I’m excited about this product, because I think that Canada needs this type of product,” Seif concludes. “Managed futures are the kind of thing that people really need to understand. And I think if they do, they’ll recognize the value of this type of strategy for the long-term investor. It really is a critical component of, I believe, every person’s portfolio.”

Danielle Arbuckle

Danielle Arbuckle

Danielle is a freelance writer and editor who has been writing about personal finance and investing for the past 10 years. She has worked for a provincial securities regulator, a bond rating agency and a large Canadian publishing house.