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 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

Commodity pool operators have developed their own methods of putting funds together.

New trading strategies derived from combining artificial intelligence, historical simulations and new applications of tested theory will also be incorporated into the markets. Mount Lucas Management Co. can test an algorithm using historical data going back 30 years. One Chicago proprietary trading firm uses 15 years of tick-by-tick trading data on key markets which are screened by artificial intelligence to discern price patterns over any possible time frame. These historical patterns are then compared against live trading data. Richmond Financial Resources, Richmond, Texas, has also developed an exclusively automated trading operation. Read more »

Posted: February 4th, 2008 under Future Fund, Futures Market, Managed Futures.
Comments: 6

Mitchell is certain that good performance over the longer term is the only way to tell luck from skill, but if that type of data is not available, he has the following suggestions for evaluating shorter trader history:

• Using qualitative information to eliminate some lucky traders.
• Excluding all biased data including simulated track records and extracted trades.
• Basing the evaluation on a statistically significant number of events, rather than a statistically significant number of trades.

Read more »

Posted: February 4th, 2008 under 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 term managed futures refers to investment management in which futures contracts are used as an asset class, especially for their profit potential rather than for their risk-reduction benefits. Money managers who deal in futures are formally called commodities trading advisors, or CTAs.

There is some evidence that futures as a group have low or even negative return correlation with stock and bond markets. If this is the case, it makes them excellent portfolio components. Read more »

Posted: February 1st, 2008 under Futures Contracts, 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

Before the advent of managed futures funds in Europe, many European countries—but particularly the UK—suffered the attentions of unscrupulous and largely unregulated futures brokers. These unprofessional operators encouraged retail investors to open their own trading accounts, through which either the vicissitudes of the futures markets or the inflated nature of the brokers’ fees usually managed to ensure that the investors lost most of their money. Many of these unregulated practitioners arrived in Europe from the US, where the strict regulatory regime established by the Securities and Exchange Commission (SEC) or the CFTC had chased them out. The UK and continental Europe also managed to grow a few of their own cowboys.

Gradually, the introduction of a stronger regulatory regime across Europe and the growth of well-regulated managed futures funds — supported by their trade associations—have largely pushed the cowboys out of the forefront of the industry and out of existence, or into less well-regulated centres. Read more »

Posted: February 1st, 2008 under Future Broker, Future Fund, Future Investing, Futures Market, Managed Futures.
Comments: 6

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 arguments against managed futures should also be addressed:

1. their insularity;
2. they are not an asset class in their own right;
3. their high charging structure.

INSULARITY

One of the most interesting arguments presented against managed futures as an acceptable investment is that their development in the US simply reflects American insularity. Read more »

Posted: January 29th, 2008 under Commodities Futures, Managed Futures.
Comments: 3