Direct Participation Programs

The next level up in size and complexity is direct participation programs, or DPPs. You may think of them as tax shelters or limited partnerships (LPs). They are constructed to pass through all of their income, gains, losses, and tax benefits to their owners. The partnership itself pays no taxes because the partners accept liability. Gas-oil exploration and real estate development are common LPs.

Unlike those big sisters, the commodity trading limited partnership is not a tax shelter. It is structured to provide limited liability to investors. The syndicator is the CTA or a CPO, and usually the general partner as well. These can be public or private. Private LPs are usually formed by a small group of wealthy investors, while public LPs attract large numbers of small ($2,000 to $5,000 minimum) investors. The latter requires a full-fledged prospectus and is more stringently watched by federal regulators. Both must be registered with the SEC. Read more »

Posted: March 2nd, 2008 under Corn Futures, Crude Oil Futures, Future Fund, Future Management, Future Trading, Futures, Futures Contracts, Futures Market, Futures Prices, Interest Rate Futures, Managed Futures, S&P Futures, Stock Market Futures, market.
Comments: 4

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