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Managed Futures Funds

Managed futures funds constitute a $337 billion market and many large brokerage firms have setup their own managed futures funds and recommended thousands of investors place their assets in these funds. However, a Bloomberg article has raised questions concerning the suitability of managed futures funds. According to the article, from 2003 to 2012, 89% of the futures fund trading profits and interest for 63 SEC-registered funds were consumed by fees and commissions leaving investors with little profit for their investment. In the wake of the article’s revelations the Commodity Futures Trading Commission (CFTC) has opened an investigation into the high fees charged to investors.

As a background, the expected gross return to a fully collateralized futures position equals the return to a cash investment plus compensation for the risk borne in the collateral investment. For stocks and stock index futures the compensation is the expected return on the stock market. For other underlying investments, the expected returns is often less. Thus, a managed futures fund investment with 7 to 9% annual expenses on average will earn much less than stocks and bonds over the same period of time due to the commissions and fees taken from the fund by the managers and the brokerage firm each year that would otherwise be available to the investors.

The failure of managed futures funds is also backed up by empirical research. From January 2003 through the end of 2012, the Bloomberg article found that Morgan Stanley had 30,000 customers to invest $797 million into a managed-futures fund called Morgan Stanley Smith Barney Spectrum Technical L.P. The prospectus for Spectrum Technical fund stated that the fund was potentially profitable “when traditional markets are experiencing losses” and recommended the fund as a way to diversify an investor’s holdings beyond traditional stocks and bonds. The prospectus also allegedly boasted that over a twenty-three year period investors who placed ten percent of their assets in managed futures outperformed portfolios comprised only of stocks and bonds.

The Spectrum Technical fund earned $490.3 million in trading gains and income from 2003 through 2012 according to the article. Nonetheless, investors who remained in the fund during this period did not receive any of the returns because the manager’s and Morgan Stanley’s commissions, expenses, and fees paid totaled $498.7 million. Thus, Spectrum Technical investors lost $8.3 million for no other reason than the fees charged to the fund were greater than the gains.

Below are some managed futures funds we are currently investigating:

The Morgan Stanley/Ceres Managed-Futures Funds:

  • Morgan Stanley Smith Barney Spectrum Strategic L.P.
  • Morgan Stanley Smith Barney Spectrum Technical L.P.
  • Morgan Stanley Smith Barney Spectrum Currency and Commodity L.P.
  • Morgan Stanley Smith Barney Spectrum Global Balanced L.P.
  • Morgan Stanley Smith Barney Spectrum Strategic L.P.
  • Morgan Stanley Smith Barney Spectrum Select L.P.
  • Polaris Futures Fund L.P.
  • Meritage Futures Fund L.P.
  • LV Futures Fund L.P.
  • Managed Futures Premier BHM, L.P.
  • Managed Futures Premier Graham L.P.
  • Managed Futures Premier Aventis II L.P.
  • Managed Futures Premier Warrington L.P.

Merrill Lynch Managed-Futures Funds:

  • ML Systematic Momentum FuturesAccess LLC
  • Man AHL FuturesAccess LLC
  • ML Aspect FuturesAccess LLC
  • ML Winton FuturesAccess LLC
  • ML BlueTrend FuturesAccess LLC
  • ML Transtrend DTP Enhanced FuturesAccess LLC

Other Managed-Futures Funds:

  • Grant Park Futures Fund LP
  • Altegris Winton Futures Fund LP
  • Campbell Strategic Allocation Fund L.P.
  • RJO Global Trust
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