Managed Futures, Overlay Strategy

Managed Futures

Explained:

Managed futures is a notion from investment management. The concept is that a portfolio of futures or forwards on underliers such as commodities, foreign exchange or energies can be implemented by institutional investors much like portfolios of stocks or bonds. Marketing literature for managed futures promotes such funds as an "alternative asset category." This is a controversial notion.

An overlay strategy is a managed futures portfolio that is added to an existing portfolio in order to introduce new exposures to the portfolio. The strategy is called an overlay because the futures or forwards require little or no initial funding. For this reason, they can be "overlaid" on top of an existing portfolio without requiring any reallocation of that portfolio's capital. Currency overlay strategies have, at times, proven especially popular.

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