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By Nadia Papagiannis, CFA | 02-04-2010 02:06 PM

How Managed Futures Work in a Portfolio

AQR Capital Management's Brian Hurst and Yao Hua Ooi on the diversification benefits and risks associated with a managed futures strategy.

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Nadia Papagiannis: Hello, my name is Nadia Papagiannis. I'm an alternative investment strategist here at Morningstar. Today I have with me Brian Hurst and Yao Hua Ooi from AQR Capital Management.

AQR Capital Management was founded in 1998 and currently manages about $24 billion in both traditional and alternative investments. They've recently debuted a new managed futures strategy fund and that's what we're here to talk about today. Thank you for coming and visiting with us today.

Brian Hurst: Thank you.

Papagiannis: Brian, can you please explain what managed futures means and why an investor might include that in their portfolio?

Hurst: Absolutely. Managed futures, by and large, is what we would call trend following. That means buying assets that are going up and selling assets that are going down.

Why is this important? Well, this type of strategy, with its flexibility to go long and short, in many different asset classes, equities, fixed income, currencies, and commodities, gives an investor a lot of diversification to their portfolio. Since most investors are long-only, this is going to give you an alternative way to get access to a strategy that tends to pay off when the rest of your portfolio is not doing as well.

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