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.

Read more »

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

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

It is, perhaps, because the commodity markets are so volatile and so erratic in their movements that they have attracted so many traders armed with higher degrees in advanced mathematics and technically complicated systems who are determined to draw a semblance of order from the chaos.

All CTAs trade using some system or another. Some employ superstition— trading on an equation computed on their mother’s birth date or some other equally unscientific approach; some apply pure mathematics; some a wealth of historical research; others a gut reaction to what is happening in the markets; but all use some sort of consistency in their approach to achieve their results.

The appeal of making money in managed futures is the basic instinct that draws anyone who wants to turn a modest cash sum into a fortune, and do it overnight. However, the ability to manage money—and risk—in the futures markets requires genuine skill and is not common. Most traders lose on their trades more often than they gain. Read more »

Posted: February 4th, 2008 under Futures Contracts, Futures Market, Futures Prices, Futures Trader, Managed Futures.
Comments: 5

These charges are usually quoted on a round turn basis, that is, representing the buy and sell process, and can vary significantly, from between US$ 15 and US$ 60 a round turn.

DEALING WITH THE FEES PROBLEM

Funds that are guaranteed carry more charges again, with a fee to the bank that is underwriting the guarantee, a fee for the zero coupon bonds or whichever high-grade security is being used for the guaranteed elements and so on. Clearly the institutional investor, for whom investing in futures is not the magical, mystical activity that it may be for the retail investor, is going to balk at paying these fees. Read more »

Posted: January 31st, 2008 under Managed Futures.
Comments: 4

The purpose of performance measurement in managed futures is quite clear. It is to establish from a statistical perspective how ‘good’, ‘bad’ or ‘indifferent’ the performance is of a particular trading adviser.

All performance analysis is a study of the historical track record and there can be no guarantee that whatever has been achieved in the past can be achieved again in the future. Gaining historical information itself is difficult in this industry because of its short history.

The objective of analysis is simply to get an indication of the likelihood and capability of an adviser of managing risk and generating returns. Read more »

Posted: January 30th, 2008 under Future Fund, Managed Futures.
Comments: 5