Meet the ‘Southwest Airlines’ of Managed Futures

Why following trends works with alternative investments

Alternative asset management firm Longboard is fun to write about—for one thing, it offers many metaphorical possibilities.

“We observe the oceans of opportunity and catch the wave,” Cole Wilcox, Longboard’s CEO, explained to AdvisorOne at the 2012 Morningstar Investment Conference in Chicago on Thursday. “The tool is right, because longboards are used to surf the large waves, of which we want to get out in front. Short boards are for smaller waves, and we’re not interested in them.”

In case it wasn’t obvious enough, he meant long-term cyclical trends—the average duration of one of their trades is one year, he said.

“We specialize in ultralong-term durations of managed futures in the ’40 Act space,” he said. “We bring a high level of technical expertise to the strategy. We noticed there was really no directly managed, sponsored product, so we responded to that need. It’s efficient and really takes advantages of those fat tails along the curve.”

Much of the firm’s distribution strategy, not surprisingly, relies on advisor and client education.

“It’s an education approach first,” Wilcox said. “We want to explain to them why trend following [i.e. riding the wave] works. We want them to understand why typically there is a small minority of investment winners and a large majority of investment losers, and how they can be a part of the former.”

While Longboard has a high level of technical expertise and “pedigree” in the alternative asset space, the latest fund, the Longboard Managed Futures Strategy Fund, Class N shares, launched on Monday.

According to Mutual Fund Observer, it will seek positive absolute returns.

“The Fund will hold a mix of fixed-income securities and futures and forward contracts,” according to the website. “Like other managed futures funds, it will invest globally in equities, energies, interest rates, grains, meats, soft commodities (such as sugar, coffee and cocoa), currencies, and metals sector. It may offer some emerging-markets exposure.”

Wilcox ran a managed futures hedge fund for Blackstar Funds for eight years. Blackstar counted the legendary investor Thomas Basso as its lead investor and was set up essentially as a family office to manage his money. Basso, a big proponent of following trends when trading, was president and founder of Trendstat Capital Management. He also authored two books on the subjest, Panic-Proof Investing and the self-published The Frustrated Investor. In 1998, he was elected to the board of the National Futures Association (as we said, pedigree).

“No other hedge-fund pedigree is doing a directly managed futures fund,” Wilcox reiterated. “For the advisor, it means reasonable fees and a sustainable investment process. It will be delivered in a mutual fund and will have liquidity. It won’t be a ‘2 and 20’ situation and the client won’t have to compromise on fees to get performance. They’ll have direct access to managers at a reasonable cost.

“We’re like Southwest Airlines,” he concluded. “We do one thing and we do it well. You know what you get and, more importantly, you know what you won’t get.”

The minimum initial investment for the new fund is $2500. Expenses will start at 3.24%, plus a 1% fee of shares held for fewer than 30 days.   

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