* Downside Protection. Commodities have often been negatively correlated to stocks, and other financial assets. As the stock market weakens, this negative correlation tends to grow stronger. So including an allocation to an otherwise volatile asset class like commodities can actually help lower risk, by providing some protection right when you need it most.

How are profitability , volatility and risk affected when managed futures are included in an investment portfolio? Harvard Business School Professor John E. Litner found that including managed futures in a portfolio "reduces volatility while enhancing return." And that such portfolios "have substantially less risk at every possible level of return than portfolios of stocks, or stocks and bonds."

For the 10-year period ending in December 1995, data studied by the Managed Futures Association, an industry organization, show that managed future investments had a compound annual return of 12.2%. That compares respectably with the 14.9% return that common stocks had during the same period, one of the strongest stock markets in U.S. History. Further, it exceeded the 9.7% compound return on bonds and the 6.8% return on international stocks, another popular vehicle for portfolio diversification.