Due to some recent high profile fraud cases within the hedge fund industry, many investors are seeking greater transparency from their investment managers. While many managers protect their proprietary trading programs, there is one sure fire way to address this issue.
Fund redemptions are nothing new. Every recession or bear market sees investors redeeming their fund investments and moving to asset classes which provide a greater degree of safety. For most, this is the Government Treasury Bill also called the T-Bill.
While reasons for redemptions are as varied as the investment selections themselves, it seems that individual investors are uncertain of their understanding of what their money has been invested in. While mutual funds are marketed to the investor with a lower knowledge of investment products, the hedge fund has always been the investment choice for more knowledgeable investors or the "Accredited Investor". But now it seems even this group is calling for the need of greater understanding from their investment managers.
The battle for returns which out perform the index has resulted in many Portfolio Managers refusing to disclose their trading program for fear others will duplicate their trading style. It is said by many managers that it's this ability to observe unique characteristics in the market place that differentiates their funds performance from the typical returns generated by bottom quartile performing funds and fund managers. Of course the unregulated hedge fund industry has perpetuated this myth by trusting the Accredited Investor with an above average knowledge of the market and his ability to select the correct investment for their portfolio. It seems the Accredited Investors does not always posses greater knowledge than their more un-sophisticated mutual fund brethren.
So that bears the question of how to obtain this transparency to the satisfaction of the investing public? And the answer is the Managed Account.
Managed Accounts are simply individual accounts opened in the name of the investor. These accounts are not pooled, yet they are identically structured and managed by the hedge fund Portfolio Manager in the same style as the pooled fund. The critical difference is the investors ability to see every trading transaction performed in the account by the fund manager.
The popularity of the pooled investment structure is that investors do not have to deposit large sums of money to utilize the services of a professional Portfolio Manager. Most successful professional Portfolio Managers do not accept accounts less than US$10 million dollars.
The hedge fund and mutual fund gained popularity by allowing smaller sums of money to be pooled with other deposits from many other investors. So while you can currently participate in a hedge fund investment for $100,000, and a mutual fund for $50., a managed account may require a minimum investment in excess of $1 million. Not so good for everybody.
But lets suppose you can convince your hedge fund manager to accept your $100,000 what advantage do you gain.
1. the investment account is actually in your name and not in the funds name;
2. your account is segregated from all other trading accounts;
3. instead of waiting for your monthly or quarterly statements, you can see the activity in your account on a daily basis in real time;
4. cash deposits or withdrawals can be simplified;
5. you have an overall increase of account transparency; and
6. you can no longer claim you did not know what was going on in your account. (oops, is that a benefit).
There are also some disadvantages. Or put another way, the pooled investment structure provides some distinct advantages which originally made them popular since the first hedge fund was created in 1949. These funds should not be confused with the investment account managed by your stock broker. The professional Portfolio Manager will continue to exercise complete trading autonomy and does not want your advice on how to manage the assets in your account.
Advantages for remaining in a hedge fund or mutual fund:
1. investors can obtain the services of a professional fund manager with smaller sums of money;
2. management costs are cheaper since it is more economical to manage one large account instead of many smaller accounts;
3. you pay one flat management fee, no commissions; and best of all
4. you still have someone to blame if things go wrong.
It is estimated that the hedge fund industry managed $2.7 trillion dollars by the end of 2008. The mutual fund industry manages $19 trillion investment dollars. So there is no question of the popularity of the industry since that first fund in 1949.
If transparency is an issue for you, you need to take a long, hard look and evaluate the pros and cons wisely. Take some time to speak with your fund manager about a managed account, it just might be the alternative you've been looking for.
Dwayne Strocen is a registered CTA and derivatives analyst assessing market risk for institutional investors. He also manages the Genuine USA Index Fund, which is focused on the indices of the USA. Website: http://www.genuineCTA.com
View more information about his managed account program and about trading greenhouse gases.
Sunday, November 22, 2009
Friday, August 28, 2009
Consider A CTA Managed Fund For Balanced Asset Allocation
There are many investment strategies for both the novice and sophisticated investor. The CTA managed fund has been overlooked until recently. Now the top performing investments are managed by CTA's and you should consider including these in your portfolio.
You might be wondering what a CTA is. A CTA is a Portfolio Manager for derivative products such as foreign exchange, commodities or futures. If you're familiar with traditional mutual funds or hedge funds, you'll know the investment decisions are made by a specialist in stocks or bonds. These are also called equity and fixed income products.
An equity fund is managed by an equity Portfolio Manager known as a CFA and a bond fund is managed by a fixed income Portfolio Manager also a CFA. Their exists a third type of Portfolio Manager and that is one responsible for managing a fund which is invested in products like currency, carbon emissions, precious metals, agriculture products and others. These Portfolio Managers are known as CTAs and they manage CTA funds sometimes known as a Managed Futures Fund.
Despite the obvious, each investment style has its own unique characteristics. For example, a traditional equity investor only makes money when the stock market is rising. They lose money during a falling or bear market. Wouldn't it be fantastic to win no matter which direction the market went. Well that is exactly what happens in a CTA fund. The CTA can buy or sell at random. We call this being "long" or "short". When long, you're betting the market is going up and when short, you're betting the market is falling. A CTA makes money no matter which direction prices are headed.
Now that you know the basics, lets look at why CTA funds have out performed equity and bond funds. Since September 2008 the wall street induced sub-prime mortgage fiasco has caused stock prices to plummet. If you held an equity mutual fund or a stock portfolio of your own, you will have lost money. In fact since Sept 1, 2008 the Dow Jones Industrial Average has lost 20.36 percent. According to the Managed Futures CTA database, the average CTA Fund YTD ROR (Rate of Return) to June 2009 is +2.14 percent. That’s a whopping difference of 22.50 percent. These funds are definitely worth looking at.
A major advantage is the ability to trade the underlying commodity product. Why buy a company that's involved in oil extraction when you can buy the oil itself. The reason why stock market investing becomes difficult, is the many different factors that come into play. There is the ability of management, economic pressure, competitive pressure, union demands, changing consumer habits and a host of other factors that determine the profitability of a company.
A CTA fund has none of these issues to contend with. Investors who purchase Aluminum or High Grade Copper on the New York Mercantile Exchange are affected only by issues of Supply And Demand. During economic periods of growth, prices rise and during periods of recession, prices fall. So while your equity fund is sitting on the sidelines waiting for a market re-bound, the CTA fund is profitably trading a falling market.
I would be remiss if I did not discuss the use of leverage. Unlike an equity fund, A CTA fund uses leverage. For example, to purchase $100,000 Canadian Dollars cost only $350 to the CTA. So when the dollar rises from 91 cents to 92 cents, the fund makes a profit of US$1,000. That equates to a 186 percent profit. If we look at this from another angle it might become clear. To purchase 1,000 barrels of crude oil at US$60 per barrel would cost US$60,000 to the cash consumer. The NYMEX charges a deposit, we call this margin, of US$6,000. Should Crude Oil rise to $65 dollars, the profit is $5,000 or 83 percent profit.
Of course, the use of leverage can be dangerous as losses can quickly escalate. Should Crude Oil have fallen to $55 instead of rising, a loss of $5,000 would have resulted. Of course, CTA funds are not the only funds to utilize leverage. Many equity hedge funds use leverage routinely and depending on your overall investment objective a balanced asset mix will dictate the percentage of your portfolio allocated to such a fund.
There are many types of CTA funds to select from. Agriculture funds, energy funds, foreign exchange funds, index funds, fixed income funds and greenhouse gas or global warming funds. Choose the one that’s right for you, but when balancing your investment portfolio don't over look this important sector for proper and complete asset allocation.
Dwayne Strocen is a registered CTA, Portfolio Manager. He manages the Global Climate Fund, an environmentally friendly hedge fund focused on the reduction of greenhouse gases. Website: http://www.genuineCTA.com
Sunday, April 12, 2009
Strategic Partnership Agreement Between CTA Firm Genuine Trading Solutions And Leading Environmental Climate Change Consulting firm Karbone
TORONTO, April 2009 – CTA Firm Genuine Trading Solutions Sign Strategic Partnership Agreement With Leading Environmental Credit Brokerage and Climate Change Consulting firm Karbone.About Karbone
Genuine Trading Solutions President and CEO, Dwayne Strocen and Karbone Executive Director Izzet Bensusan announced today a Strategic Partnership agreement. "The two companies will be pooling their resources to provide an enhanced product line of services to existing as well as future emitters of CO2 carbon emissions. The conception for this Strategic Partnership is in response to calls from North American customers to provide a more integrated service" says Mr. Strocen.
Working in a positive approach with Karbone to provide an enhanced service of OTC environmental credit brokerage is a step to providing greater integration of service in the form of both trading and managing risk. In working together, both companies can now provide a greater range of expertise to a largely fragmented industry. Mr. Bensusan says "We believe the marriage of the OTC market and the exchange traded market is the natural evolution of a fledgling industry". And he adds "Our partnership will allow us to much better serve both of our US and Canadian customers with an expanded service line and local knowledge"
Recent meetings between the leaders of Canada and the United States has brought a renewed response and positive reaction to a national commitment for the reduction of greenhouse gases in North America. Although specifics were not mentioned, it seems clear that government mandated regulation is not far off. Taking a significant step forward to pre-empt government regulation will place this company as a leading edge provider in support of the Kyoto Protocol, the Regional Greenhouse Gas Initiative, Western Climate Initiative and the Specified Gas Emitters Regulation of Alberta.
"We are pleased to extend our expertise into this exciting marketplace and believe the real winner is the carbon industry as it evolves to the ever changing demands of its participants", says Dwayne Strocen, Genuine Trading Solutions President and CEO.
About Genuine Trading Solutions
Genuine Trading Solutions is a registered CTA firm specializing in exchange trading and risk management hedging of derivative products including carbon emissions on the worlds climate exchanges. The company is focused on providing a complete risk management service in reducing risk associated with adverse economic events, including greenhouse gases.
Recently Genuine Trading Solutions announced its intention to launch a new hedge fund initiative for the benefit of ethically minded investors to participate directly in the reduction of greenhouse gases and credits. The fund is clearly a viable choice for those investors interested in participating in socially responsible investing and making a statement regarding the environment.
About Karbone
Karbone is a global environmental credit brokerage and climate change consulting firm operating from its New York and London offices. The company advises its domestic and international clients on cost effective strategies and technologies to address climate change business risks. Karbone is founded on the principle of helping its clients to execute the most effective climate change strategy. Karbone bases this on ensuring its team has up to date knowledge on climate change related issues and environmental markets and access to the widest range of transaction capabilities for executing strategies. Karbone developed its climate change consulting and environmental credit execution group to meet the particular needs of our clients across multiple industries. This includes utilities, energy firms and specialized funds.
For more information please contact:
Genuine Trading Solutions Ltd.
Dwayne Strocen
Phone: +1 416 302 6282
e-mail: press@genuineCTA.com
http://www.genuineCTA.com
KARBONE
Press Relations
Phone: +1 212 291 2900
press@karbone.com
Subscribe to:
Posts (Atom)
Posts
