We frequently find ourselves engaged in conversation about fee structure in managed futures. Traditionally, managers will charge a 2% management fee, and a 20% incentive fee for returns over their prior high water mark with the investor. For investors who are used to seeing fees that look a little like 1.75% total for a year from an ETF or mutual fund, this seems obscene.
Our response is uniform – you get what you pay for. For many of our investors, managed futures performance (especially since it’s calculated including those “exorbitant” fees) is worth the fee structure. When managed futures investments do their job – as they did during the ’08 crisis – the outperformance is more valuable than the fees being paid back to the manager.
Once this conversation takes place with a world-weary investor, the fees usually become a non-issue in the decision making process, but that has never slowed down admonishments about the fee structure from the traditional investing space. For many advisers, in particular, there can be a fixation on how much an investment “costs,” without contextualization of the investment’s performance and role in a portfolio.
So when we see someone in the traditional space bemoaning this mindset, we breathe a sigh of relief, knowing that there are people out there who get it. Most recently, author of the financial planning industry blog Nerd’s Eye View Michael Kitces hit the nail on the head:
[…] if 2,700 basis points of outperformance is weak performance because it wasn’t an absolute positive return, but 10 basis points of expense ratio is so important to save, then maybe we need to look more carefully at outperformance and consider what we are comparing it to.
Of course, this is not to say that concerns about managing cost don’t matter. They absolutely do. It’s just astonishing the lengths that planners will go through to save a few basis points of cost, yet how little we value 100 basis points of outperformance, much less 1,000 or 2,700 basis points of excess return. It appears to me to be quite a double-standard!
Exactly. Cost and outperformance cannot be looked at in a vacuum – you have to juxtapose these factors with things like the investing climate, past performance, methodology, and portfolio needs. Otherwise, you miss the forest for the trees… or opportunity for a penny saved today. Just remember as you peruse the programs listed in our database – those listed returns INCLUDE all fees.
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.
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.
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.