In Europe, as elsewhere in the world, institutions like when possible either to deal with specialist boutique operations or with operations the same size (or at least with the same standing in their particular industry) as themselves. Thus a middle-sized fund group with, say US$ 10m or US$ 25m under management is going to find itself with a very hard sell indeed. In these circumstances it is important, from a marketing standpoint, to quote all the capital/corporate size available. Thus if the middle-sized fund group is a subsidiary of a larger brokerage or banking operation, the capital worth of the parent should be brought into play.

If no parent company exists, attention should be focused on the specialist characteristics of the fund group and its investment programmes (words like flexibility and innovative are useful here) in an attempt to portray the fund group as a niche business. (This technique is often used by consultancy groups seeking to act for investment management groups.) Read more »

Posted: February 17th, 2008 under Future Fund.
Comments: 5

Embarking on a marketing effort with the major European financial centers as the initial focus is, however, extremely arduous for new, particularly non-European, groups.

Given appropriate lists of contacts, one-on-one meetings can be arranged relatively straightforwardly, but their effectiveness is dependent on a series ofcriteria beyond the chemistry of the meeting itself.

Press relations, actively undertaken, will serve both to boost familiarity of a fund management group and, moreover, can prove a valuable information source to the group as well as from it. Read more »

Posted: February 17th, 2008 under Future Management, Future Trading, Futures Quotes, Managed Futures.
Comments: 3

European Institutions

The preparedness of European institutions to purchase either managed derivatives funds or programmes varies across the continent and is dependent upon a series of factors some of which may be addressed by marketing.

1. The regulatory (and tax) environment;
2. general familiarity with the derivatives and managed derivatives industry;
3. familiarity with the fund management group attempting to sell product;
4. presence and format of a track record (at least for past funds if a new product is offered);
5. money under management within the fund group;
6. technical expertise within the fund group;
7. performance aspirations for the fund or investment programme;
8. quality and content of the explanatory/sales materials;
9. financial considerations such as fees implicit within the fund or programme.

Read more »

Posted: February 16th, 2008 under Foreign Exchange Futures, Future Fund, Futures Trading System, Oil Futures.
Comments: 5

The principal marketing objective for CTAs, unless very large or very well- known, is to be included as a money manager within multi-manager funds. The most important element in the successful attainment of this objective is performance listing and it is incumbent on a CTA to spend a considerable part of the marketing effort in making sure that as many international services as possible carry his or her figures. The critical value of such services (such as Managed Account Reports, or LaPorte) is two-fold. First they are the key distributors of performance information and as such are followed by so-called `Hot Money’. Second they provide subscribers with an easy opportunity to make comparisons between CTAs. Read more »

Posted: February 16th, 2008 under Stock Futures.
Comments: 4

Concern

The size of the markets can work against foreign investors in two ways. First, some securities and some countries may be illiquid. In such markets, any reasonably sized trades are sufficient to move the price. The price rises when one wants to buy and falls upon a sale. This is particularly painful because most foreign investors end up selling and buying around the same time.

The second concern with market size is inefficiency. Emerging markets are known to be inefficient, and prices can take several days to fully reflect new information. As a passive investor, you can lose money to more sophisticated investors who trade on the basis of the inefficiency. Read more »

Posted: February 14th, 2008 under Commodities Futures, Future Investing, Future Management.
Comments: 6

Costs and Taxes

Concern

The cost of investing internationally is significantly higher than investing domestically because of many factors. First, gathering information about foreign stocks is more expensive. Foreign companies reveal much less information about their operations than their American counterparts because they do not have the same kind of disclosure requirements. Moreover, the information that is available in the public domain is more difficult to obtain and more expensive. Investors must subscribe to foreign database subscription services, fax services, and foreign newspapers and pay for expedited delivery to obtain the information in a timely manner. And differences in accounting practices mean that financial statements are not easily comparable. These difficulties make research required to value foreign company more expensive and more uncertain. Read more »

Posted: February 14th, 2008 under Future Exchange.
Comments: 3

There are a variety of concerns with international investing and limitations of the analysis cited in previous sections. These limitations are discussed below and may weaken the case for international investing.

Increasing and Varying Correlations

Concern

The key benefit from international investing arises because of low correlations between the domestic market and foreign markets. There are two criticisms of historical correlations. First, the correlations may be increasing due to greater global integration as evidenced by larger capital and trade flows. Moreover, as more and more emerging markets liberalize capital flows, the correlations will increase. If the correlations are increasing, the above analysis based on prior data overestimates the benefit from international investing. Reconsider the example in the preamble of “Evidence,” above. With a correlation of 0.60, the new portfolio’s risk fell from 18 percent to 16 percent. However, if the correlation is 0.70 instead of 0′:60, then the new portfolio’s risk falls less, from 18 percent to 16.6 percent. If the correlation is 0.8, then the risk is 17.1 percent.

You can see that the gains from international investing can quickly erode with an increase in correlations. Read more »

Posted: February 14th, 2008 under Futures Market, Futures Trading System, investment, market.
Comments: 5

Key Points

• When currencies are exchanged for delivery more than two business days later, the governing exchange rate is the forward rate. The forward rate is given by an inviolable interest rate parity that ensures that two riskless investments generate the same total return. Under normal circumstances, the forward rate should be an unbiased predictor of the future spot rate. However, the actual future spot rate is significantly different from the forward rate. This phenomenon is referred to as the forward rate bias.
• In order to satisfy the requirement of the same return generated by two riskless assets given by interest rate parity, the currency with the higher interest rate must depreciate relative to a currency with a lower interest rate as given by the forward rate. Evidence indicates that the currency with the higher interest rate actually appreciates instead of depreciating. This pattern is confirmed for a variety of currency pairs not including high-interest-rate currencies, for many different observation periods, and many different holding periods. It seems that the bias decreased a little during the 1990s and it disappears when the holding period becomes about ten years. However, the bias at short holding periods of about one month is of most interest to investors.

Read more »

Posted: February 14th, 2008 under Currency Futures.
Comments: 4

Agents

One marketing consideration that generally affects fund groups attempting international retail sales is a need for agents in various countries.

Making contact with such agents has, in the past, normally been achieved by advertising (often classified) in such publications as The Economist or the International Herald Tribune supported by editorial coverage of a fund group’s ambitions in agents‘ trade magazines (of which there are a growing number).

There are three principal messages that need to be put across. The first, most obviously, is the size of the upfront sales commission and of the so-called ‘trail’ or ‘trailing commission’ (the ongoing income to an agent whose clients stay with the fund). Quite reasonably, fund companies have become uncomfortable with an exclusive focus on upfront commissions since certain groups found themselves being burnt by commission earning money coming into a fund and then, mysteriously, moving on somewhere else.

The second message is support. Agents increasingly respond well to formal training sessions — both about the managed derivatives market in general as well as about the specific product on offer. Supplementing such events, many fund groups also put together specific agents packages which include simplified written explanations of aspects of the derivatives industry and on the historical/academic arguments often used to promote derivatives funds—Portfolio Diversification^,Futures as a Separate Asset Class, Modern Portfolio Theory and so on. Read more »

Posted: February 12th, 2008 under Managed Futures.
Comments: 4

Advertising

Beyond the requirement for agents (discussed below), fund groups undertaking retail sales tend to support their marketing efforts with fund advertising. Advertising regulations are both complex and highly variable between different countries but that does not mean that effective campaigns cannot be developed.

One problem to be faced here is that the most effective marketing statement— the expected performance of a new fund—is the one most difficult to get past the regulations. (Past performance is no guarantee of future results, for example.)

Fund Structure

Retail orientated managed derivatives funds may often differ from their institutional counterparts. The best example of this is in the employment of guarantees of return of capital. So-called guaranteed funds appeared in the mid-1980s and have thus far escaped the best efforts of numbers of regulators (outside the USA) to force a name change to something less overtly promotional (assured capital funds and so on).

Guarantees have their supporters and detractors but they do sell to retail investors and investors who (in most, but not all, countries) like the assurance of a guarantee when trying a new type of investment vehicle and are less swayed by comments about performance dilution than are the institutions. Furthermore, from a marketing standpoint, the presence of a guarantee or more accurately a guarantor creates the opportunity to include the name of a bank (often a major bank) as an additional sales incentive.

Marketing Materials

There is no proof of the assertion that retail investors are more swayed by brightly coloured marketing materials than are institutions. What is clear, however, is that the content of such materials should spend time introducing the concepts of derivatives and of managed derivatives at a more basic level. One worry expressed by many fund groups is the inclusion of the notorious word commodities within documentation about a diversified fund and various awkward attempts have been made at euphemism.

In fact it is probable that commodities — pictured rather than discussed— have a positive rather than negative sales impact since they are much more readily comprehensible than certain classes of financial instruments. When a retail investor understands that the natural way to invest in oil or (tax-free) gold is through derivatives he or she is often on the way to becoming the purchaser of a certain type of fund.

Joint Ventures

Creating joint venture arrangements between a fund group and a financial group capable of distributing product is one of the most efficient ways to obtain investment capital, but at a price. The key requirement in arranging joint ventures is not marketing but having a clear understanding of the financial structure of the proposed fund and the income consequences of various splits of the managed or sales fees or brokerage commissions.

Marketing can help initiate discussions, however. Here, a high profile in the press is desirable, particularly if supported by occasional conference platform speeches (see below). It may also be helpful for a member of the fund management team to be an active member of a derivatives or managed derivatives trade association—to give more strings to the marketing bow.

Posted: February 12th, 2008 under Future Fund, Future Management, Futures Spreads, Futures Trading System.
Comments: 4