Commodity trading has always struck fear into the hearts of investors and their advisors, but it may just be the diversification that investors need to support their portfolios in these volatile times. Many of these diversified traders are the best in the investment world.
Take David Harding, the ‘H’ in the Man AHL Fund who left to start Winton Capital Management, which now manages billions. If you had invested in his Winton Futures Fund in 1997 when it launched, your money would have grown by almost 1000%, bringing in a compounded annual return of 13.73%. That is what a diversified commodity trading adviser can add to a portfolio.
While many asset classes are flailing this year, managed futures have gotten off to a healthy start. Through February, the BarclayHedge CTA (Commodity Trading Advisor) Index is up 2.94%. Within the group, the best performers are those traders who are diversified (up 4.33%) and/or systematic (up 3.97%). And though overall CTA mutual funds have not been stellar performers (up 0.24% measured by SG Index), the BTop 50 CTAs have gained 1.51% through February.
Investors and advisors should be interested in the diversification that managed futures add to any portfolio, but high investment minimums and fears of elevated risk have kept many at bay. Today, however, it’s possible to access large CTAs through several mutual funds.
Some of these funds are pared down versions of a larger CTA program, built around what the managed futures business calls “smart beta.” Simply put, these are the internal trend-following strategies within some of the larger CTA programs.
Many CTAs have extracted a portion of their portfolio for separate investment. They often don’t charge management fees, just small incentive fees, and can be accessed through CTA managed accounts, which may have high minimums, or through ‘40 Act mutual funds. For example, Equinox Funds offers several of these mutual funds, including those that are “smart beta” programs.
But what if you wanted direct exposure to some of the world’s top CTAs?
How to Invest with the World’s Top CTAs