The Role of Futures in Tactical Asset Allocation: Managing Market Exposure

Scott Hixon ()
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Scott Hixon: Senior Portfolio Manager and Head of Research for Invesco’s Global Strategies Team

Chapter Chapter 25 in Derivatives Applications in Asset Management, 2025, pp 385-390 from Springer

Abstract: Abstract The strategic use of futures contracts in tactical asset allocation is demonstrated in this chapter. The case presents practical applications of futures through a balanced portfolio based on a 60/40 allocation model, showing how futures streamline asset allocation shifts. For instance, a portfolio manager can adjust equity and bond exposures by trading futures contracts rather than directly buying or selling individual securities. The illustration details scenarios such as increasing equity exposure or reducing bond allocations by incorporating futures, enabling portfolio managers to align tactical decisions with market expectations dynamically. Through detailed illustrations, the case underscores the precision of futures contracts in achieving desired allocations while minimizing leverage and transaction complexity. Finally, the study highlights the tax advantages of futures for tactical investment horizons under the 60/40 tax rule, which treats 60% of gains as long-term and 40% as short-term. This favorable tax treatment, combined with the liquidity and cost benefits of futures, positions them as an optimal tool for short-term tactical adjustments in taxable and tax-exempt portfolios. By examining the practical mechanics and strategic advantages of futures, the case establishes their critical role in modern portfolio management, enabling managers to achieve flexible, cost-effective, and tax-efficient allocation adjustments.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-86354-7_25

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DOI: 10.1007/978-3-031-86354-7_25

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