Use of a Managed Futures Account to Enhance Overall Portfolio Return

Overall portfolio increases from 12% to 14.3%, or approximately 20%.

This concept is the backbone of Modern Portfolio Theory developed by Harry Markowitz in the 1950s, as referenced earlier. The investor sorts through various allocations of his or her assets to find what is known as the efficient frontier. This is the best mixture of assets to generate the most return with the least amount of fluctuation or volatility. The allocation or reallocation process needs to be reviewed periodically, as economic conditions change. Investments, for example, that do well during inflationary periods, like physical commodities, should be increased as the CPI rises and reduced as it falls. Read more »

Posted: March 4th, 2008 under Uncategorized.
Comments: 3

The professionals within this industry have their own trade association, the Managed Futures Association. Its function is to assist members, to promote the industry, and to advance the industry. They produce an excellent monthly professional journal that discusses issues important to members, everything from legislation, regulatory compliance, trade execution, to marketing. Their annual membership directory is an excellent source to find CTAs and CPOs.

Commodity pool operators are the individuals or corporations who structure funds. These are pools of commingled money from a number of individual investors. Most of the funds are large enough to require multiple CTAs. If the funds are properly selected, this further reduces risk, as we saw earlier. Most CPOs closely follow the performance of a large number of CTAs and analyze their performance. For this reason, CPOs can be excellent consultants in CTA selection. Read more »

Posted: March 4th, 2008 under Futures Index, Futures Market, Futures Options, Futures Prices, Futures Trading System, Managed Futures, investment.
Comments: 4

The investor who gets burned is the one who doesn’t do his or her homework. Spend time with potential traders. Find out how strong their passion for the market is. What sacrifices have they made? You can often tell the real McCoy from the con man by visiting their office. If it’s cluttered, filled with market data, that’s a good sign. If the candidate is more interested in the markets during trading hours than you, that’s another good sign. Interviews with their supervisor (virtually everyone who’s an insider is registered with the NFA and would have a compliance supervisor) may provide some insight. An independent CTA would not have a direct supervisor, but would have to clear trades through someone. Don’t forget the NFA Information Center. Read more »

Posted: March 4th, 2008 under Uncategorized.
Comments: 4

For the uninitiated, Paul Tudor Jones has had, and is still having, a spectacular career as a futures trader. If you had invested $1,000 in the Tudor Future Fund at its inception in September 1984, you would have had $17,482 by October of 1988. He combined five consecutive years in a row of triple-digit annual returns. During the month no one on Wall Street forgets, October 1987, his fund registered a 62 percent gain.

Unfortunately, he is no longer accepting money. As a matter of fact, he’s making distributions. This is one of the important “catch 22s” of the managed futures industry. Once a money manager becomes famous, he or she is no longer accessible because his or her minimum investment is out of the reach of everyone but the largest investors. If the CTA is not famous, there is probably a good reason—untested or weak stats.

What happens in managed money is not unlike what happens in any high stakes, competitive undertaking, or sport. If there is skill and luck involved, all the money flows to the superstars. Equity pours down the sieve from the many to the few that outperform all others. At some point, the few become overloaded. Excess venture capital must search for new talent. Great new traders enter the competition and work their way to the top. Read more »

Posted: March 4th, 2008 under Future Exchange, Future Fund, Futures Market, Futures Trader, Managed Futures.
Comments: 4