A Greener Futures Contract?
As the global warming debate continues to heat up, our European counterparts have instituted a carbon permit system, where carbon producers will need to secure permits to cover the amount of carbon they produce each year. In an effort to allow the markets to determine pricing, it appears as though traders across the pond will have a chance to get in on the game. Does this mark the dawn of an emissions permit futures market?
UNG- The Cautionary Tale
Every month, we publish a table that compares popular long-only commodity fund performance with the results of purchasing a December futures contract in the same commodity and rolling that contract annually. Typically, the futures contract outperforms- but this has always been most clear in Natural Gas and the UNG fund. As if you needed more convincing to stay away from those long-only funds….
A Reversal in the Trend
We’ve never been timid with our criticism of hedge funds, which is why we’re so often frustrated by the association between hedge funds and managed futures (which we think is its own asset class). For instance, the merry-go-round of old hedge funds being liquidated and new ones being launched is a problem. Recently, however, there are signs that this trend may be slowing down – and we think this is great news.
If this is what advisers care about, why not managed futures?
A piece in the current issue of the Journal of Financial Planning entitled “Investigating Alternative Investments” does a great job of taking a look at the many complex facets an investment adviser should be considering as they guide their clients through the investing process. But looking at the criteria for alternative investments left us wondering – isn’t managed futures just what they’re looking for?
The (Mutual Fund) Empire Strikes Back
We’ve been longstanding critics of managed futures mutual funds, in no small part due to the mismatched regulatory structure – these funds were allowed trade futures without being subject to the rules set forth by the NFA and the CFTC. And we weren’t the only ones who saw this as a problem – the NFA caught wind of it and requested that the CFTC restore operating restrictions on registered investment companies doing futures trading. Now, the CFTC has announced it is rolling back the rule exclusion that allowed mutual funds which invest in futures to bypass registration, and the inevitable lawsuits have ensued…
Disclaimers
Managed futures, commodity trading, forex trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments.
The entries on this blog are intended to further subscribers understanding, education, and – at times – enjoyment of the world of alternative investments. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.
The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any 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.
The performance data for various Commodity Trading Advisor (“CTA”) and Commodity Pools are compiled from various sources, including Barclay Hedge, RCM’s own estimates of performance based on account managed by advisors on its books, 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 mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on RCM’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by RCM, and averaging of various indices designed to track said asset classes.
The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.
The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
See the full terms of use and risk disclaimer here.
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