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

Your choice of investment vehicles ranges from an individual account with unlimited risk to funds that guarantee the return of your principal. There is also a wide assortment of legal procedures you can take if you feel you have been treated unfairly.

On the most basic level, you can open a futures trading account and give your broker authority to trade your account. The first step is filling out what are known as account papers. The most important of these documents include:

1. Acknowledgment of Receipt of Risk Disclosure Statement—By signing this, you acknowledge you understand everything that could go wrong in your trading account and that you accept these risks. Key among the risks are that you could lose more than your original investment, at times market conditions may be such that you cannot liquidate a losing trade (limit up or down days), placing protective stop loss orders will not necessarily control losses, spreads may not be less risky than straight long or short positions, and the high degree of leverage in this investment can work against you, as well as for you.

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Posted: March 2nd, 2008 under Future Exchange, Future Investing, Future Management, Future Trading, Futures, Managed Futures.
Comments: 4

Knowing the type of investment you enter tells you who governs the regulatory process. For example, the simple managed futures trading program would be between yourself, a broker, and someone doing the trading, which could also be the broker. No security is issued. Therefore, the primarily regulators would be the NFA and the CFTC. As we progress, the offerings become a security, perhaps exempt from SEC registration, but a security nonetheless. In these cases, the SEC, the NASD, and the state commissioner of securities are the primary regulators during the selling period. Once trading begins, it is under the jurisdiction of the NFA and CFTC. This is the general rule and is not a legal opinion of any sort. Read more »

Posted: March 2nd, 2008 under Future Trading, Managed 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

CTA Regulation

Anyone whose business involves advising US citizens or residents on trading in CFTC-regulated contracts or who trades such contracts on a discretionary basis is required to register with the CFTC as a CTA and to become a member of the NFA. CTAs who have advised fewer than 15 people in the previous 12 months are exempt from registration if they do not publicly present themselves as CTAs.

The CFTC takes the view that if a CTA advises a fund, it advises each investor who participates in the fund and the CFTC counts each investor for purposes of its 15-person limit. If advice is only given in relation to pools for which a CPO is registered or exempt, the CFTC exempts it from the obligation to register as a CTA. CTAs must comply with CFTC and NFA membership application procedures and provide disclosure documents before soliciting clients. Read more »

Posted: February 9th, 2008 under Commodities Futures, Future Fund, Future Management.
Comments: 4

Most managed futures funds have a CPO, an institutional fund manager, who in setting up the fund appoints either one or a selection of CTAs who actually advise on the management of the money. Some funds have a trading manager as well, a specialist who advises the CPO on the selection of the CTAs. The number of CTAs used within a fund differs, largely depending on fashion. Multi- adviser funds were considered, for a long while, to achieve diversification of risk and lower volatility. Now the fashion is coming back to single adviser funds again as mathematical systems of trading become more complex. CPOs are also responsible for organising the back-office administration of a fund, the trustee and custodian functions, the marketing and sales of the fund and so on. While this is always extremely important in the working of a fund, it is particularly important in managed futures funds where supervision of margin or premium is essential to controlling a fund’s exposure to risk. Read more »

Posted: February 4th, 2008 under Future Broker, Future Fund, Managed Futures.
Comments: 4

1) Sponsor: the company or individual responsible for launching the fund for example, for a limited partnership, the sponsor is the General Partner

2) Trading manager or pool operator: this is the company or individual responsible for the development of the fund both initially and on an ongoing basis

3) Domicile: the legal home of the fund

4) Clearing broker: the main clearing broker for the fund. Some funds use
more than one broker; in such a case, the entry will read ‘various’ Read more »

Posted: February 4th, 2008 under Future Fund, Future Trading, Futures Trader, Managed Futures.
Comments: 3

THE ORIGINS OF THE MANAGED FUTURES INDUSTRY

In 1949, Richard D. Donchian established what is believed to be the first managed commodity fund, Futures Inc., which was offered to the public in the US. This fund was traded until it was dissolved in the mid 1970s. Donchian was a broker at Hayden Stone and he applied a system to futures money management, based on the application of moving averages. Donchian’s initiative was not taken up by a large number of fund managers in the US and consequently managed futures funds suffered a temporary lull in their development.

The next development was that in 1965, Dunn & Hargitt became the Commodity Trading Advisers (CTA) for a managed commodity account. According to Thomas Northcote’s Major Events in the History of the Managed Futures Industry, the account was US$ 2000 and came under the direction of a non-broker CTA and traded at Lamson Brothers (now part of the Shearson Lehman Brothers Group). Says Northcote: ‘One of the more anachronistic policies of the CTA was that no women could open an account.’ The management fee was US$ 175 per year. Read more »

Posted: February 1st, 2008 under Future Fund, Future Trading, Futures Contracts, Managed Futures.
Comments: 3