When looking at a managed futures investment, a primary consideration should be whether a CTA’s program is offered as a fund product or a single managed account. When investing in a fund, an investor subscribes to the fund and invests the minimum capital requirement or more. Here, the investor pools their assets with other investors in the fund. Things to consider are the redemption of your funds, lockdown and liquidation guidelines, and transparency. Managed futures funds vary in their transparency of the trading and redemption of your investment.
A managed futures account differs in that the investor opens the segregated account at an FCM of their choosing. The customer gives the CTA limited POA of their trading account. In this scenario, the investor has full transparency of the trading. Daily statements are issued, and the client can closely monitor the CTA’s activity and open positions. As well, the investor can view the margin requirements of their account.
Furthermore, the managed futures account scenario gives the investor some flexibility. For example, one can open a segregated account at an FCM with $250,000. They elect to invest in CTA “A,” which has a $250k minimum investment yet typically only has a margin to equity usage of 10%, meaning that typical margin requirements by that CTA are only $25,000. If the investor chooses, they can allocate to CTA “B” with margin to equity usage of 30% or $75k (minimum $250,000) and CTA “C” with m/e of 20% or $50k (minimum $250,000) with the same $250,000 original cash deposited at the FCM. The total margin usage of the 3 CTA portfolio would average $150,000. So essentially, the investor can notionally fund a $750,000 allocation with the same $250,000 cash. The leveraged investment offers relative ease of adding and removing CTAs from their portfolio. The investor can elect to withdraw the profits from trading without liquidating or use the accrued funds to increase their trade levels with their existing CTAs or diversify. Ideally, a portfolio would be constructed of non-correlating CTA strategies to maximize profits and minimize drawdowns.
One drawback to the managed account versus the fund is that an investor can lose more than the money originally deposited into the account. Fund investments cannot lose more than the original investment, and this can offer some investors peace of mind when investing in commodity futures. IASG’s experience will help to guide investors throughout the process of selecting and monitoring the performance of your portfolio. Furthermore, the IASGs database of over 500 CTAs gives investors the strategies and diversification to implement this type of investment.
To subscribe to the free IASG database, visit www.iasg.com. Feel free to contact me at firstname.lastname@example.org or 570-657-0523. I can help you explore the possibilities and go into more detail as to how the managed account structure can work for you.