What’s the minimum investment? Traditional CTAs can start at $50,000 and range up to $5 million. A few are being repackaged into retail versions being brought to market by major brokerages. Salomon Smith Barney, Morgan Stanley, Merrill Lynch, and A. G. Edwards offer access for as low as $5,000 for personal accounts and $2,000 for retirement accounts.
How about costs? Annual expenses of managed accounts run between 2% and 4%, although they may run into the high single digits for some retail versions. Fees will likely fall as more firms start offering programs. Remember that CTAs typically earn bonuses of 20% of their profit, but this is only paid when a fund’s net asset value exceeds its previous “high-water mark” and is based on the difference between past and current highs. Reported returns are always net of this payment. CTAs may also have an early redemption fee during the first year to discourage hot money flows.
Can I get clients out? While some accounts may offer immediate liquidity, withdrawals are frequently limited to the end of the month upon 10 days’ notice.
What are the tax considerations? Profits are not distributed to investors as they are in mutual stock funds, but investors do accrue tax liabilities. These are largely short-term, consistent with the term of most futures contracts.
Can I put a CTA program into a 401(k)? Yes. Advisors can put these vehicles into tax-advantaged retirement accounts like IRAs and 401(k)s, VAs, and other life products.
Where can I get more information? Altegris/International Traders Research (managedfutures.com), Barclay Trading Group (www.barclaygrp.com), Lind-Waldock (www.lind-waldock.com), and Institutional Advisory Services Group (www.iasg.com).