The American way has long been to go out, pull yourself up by your bootstraps, and make something of yourself. This rugged individualism has fueled innovation and growth for years upon years, but there’s one world where being the lone wolf can actually hurt you.
Managed futures.
A managed futures program, speaking abstractly, relies on a strategy developed and executed by the managers therein. In a situation where there’s only one person doing the trading, that means that the success of the entire program is resting on one man’s shoulders. If you’re looking at $400 million in assets under management, that’s a heavy load to tow on your own.
When it comes to portfolio construction, we’re wary of these one man shops, due to what is often (admittedly, callously) referred to as “bus theory.” If one man is managing your money, and that one man happens to get hit by a bus tomorrow, what comes next?
In reality, the risks extend beyond rogue public transportation vehicles. Prolonged illness, losing their “edge,” retirement, vacations and more also present potential complications for the concerned investor. Anything that would keep that one man away from work could pose a threat. When put in that light, it’s enough to make anyone nervous- especially because there’s no numeric representation of this risk in the metrics you sort through before investing.
That doesn’t mean that everything has to dissolve into chaos if a hypothetical bus were to stop short. Some managers leave standing instructions with a CTA Desk or Broker to exit trades if they don’t hear from them in a certain amount of time. Others, like Roe, Clarity, and Hoffman, have close independent broker relationships, and have backups to liquidate orders if necessary.
These days, most have taken on some sort of staff who can diligently exit trades if necessary. In fact, none of the managers on our recommended list, in our opinion, are currently susceptible to Bus Theory. In our experience, it’s newer CTAs that are more prone to being one man bands than established products, largely due to overhead issues. They will get started on their own and plan to hire “down the line.” Ultimately, those that want to manage large money are forced to bring on more people or align themselves with a larger group for support.
Even those who don’t want to join up with a larger firm realize that the “one man band” approach is probably not the best to take. Realistically, many of these managers just want to trade, so it makes sense for them to take on partners to help them handle the day to day business affairs of their CTA. We’ve seen this become a more and more common strategy for a variety of programs.
This may not solve every problem. There are still a lot of buses out there, and if it hits the trading partner, the CTA still has a considerable problem on their hands. There is a gray area for managers like Global Ag, Quantum Leap, Cervino, Bluenose, Bouchard and others, where one person is responsible for trading, while the other partner focuses on managing the business day-to-day. In these cases, we would have to assume the program would be shut down because the business partner does not have enough trading knowhow to continue managing the product.
But even that depends on the CTA in question. In some cases, the partner may have enough trading experience to continue on with the program. Such was the case with Rosetta earlier this year, when Mike Swinford tragically passed away after an accident. His partner, Jim Green, has successfully been able to take over the program, which is now up 1.35% YTD [Disclaimer: Past performance is not necessarily indicative of future results].
Even with these safeguards and reassurances, at Attain, one man bands have a hard time getting through our due diligence process. This, in and of itself, serves as a reminder as to why working with a broker is just smart when it comes to managed futures. You can analyze all the statistics you want, but without the due diligence taking place behind the scenes, you might miss this major risk factor before making a decision.
That being said, these one man shops seem to be going the way of the dinosaur, in our opinion. There may be one “brain” calling the shots for a program, but they won’t be the only ones with the keys to the kingdom if they plan on really making a go of it.
Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
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