What Are Managed Futures ?
- 1.What are managed futures/why should I use them?
- Managed Futures are an alternative investment asset class that allows investors to simultaneously participate in multiple global market sectors such as currencies, energies, metals, short and long term interest rates, domestics and international stock indices and traditional commodities.
Managed Futures can be a valuable part of an overall asset allocation plan; their purpose is to add portfolio diversification, potentially reduce overall portfolio volatility and potentially achieve higher overall portfolio performance over time when compared to traditional investment portfolios alone. A study by the Chicago Mercantile Exchange (CME) concluded that a portfolio with 20% Managed Futures has less risk than a portfolio of Stocks and Bonds alone. The major benefits with using managed futures are as follows: diversification beyond stocks and bonds, potential for higher portfolio returns, potentially reduced portfolio volatility risk, access to broader market opportunities, potential to profit in any economic condition, professional management, and portfolio liquidity.
- 2. Who regulates CTA’s?
CTA’s are typically registered with a national regulatory body. CTA’s trading futures in the U.S. are regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).
- 3. What is a disclosure document?
A disclosure document is a description of the CTA’s trading program and procedures that apply to accounts under the CTA’s control. CTA’s are required to provide sufficient disclosure to the investor. The document is required by the NFA and CFTC and describes the fees, trading program, procedures for entry and exit, past performance and rules for the overall trading program. Each disclosure document is different, so please ensure you read the CTA’s disclosure document before investing.
- 4. What is an incentive/management fee?
- Most CTA’s charge both a management fee and an incentive fee. An incentive fee is based on the CTA’s performance. Most CTA’s charge an incentive fee based on net new profits. Most CTA’s charge a management fee to trade the account. Management fees are often around 2%, but can be lower or higher, depending on the CTA.
- 5. Where is the money deposited when a managed futures account is opened?
- If you open an account with ADMIS, the funds in your account will be maintained in a customer segregated funds account.
- 6. What types of investors utilize managed futures accounts?
- Individual investors seeking to obtain futures market profits without having to make the trading decisions in the account. Also, individual investors who trade their own account, and are seeking further portfolio diversification through a different trading program. A number of corporate and institutional investors allocate a portion of their portfolio to managed futures. The total amount of capital in managed futures programs is estimated to exceed $200 billion.
- 7. Is a managed futures account appropriate as a short-term investment?
- No. Futures markets, like most markets, tend to be cyclical. Even investors that are successful over the long-term experience periods where there are losses. Although an investor is free to close an account at any time, it is not recommended that you open an account that you don’t plan on maintaining for at least a year. Managed futures are not appropriate for everyone. Only risk capital should be used to invest in managed futures. Risk capital is capital that you do not want to lose, but if you did, your lifestyle would not be changed. We recommend that the amount of money you invest in managed futures be dependent on your risk tolerance and financial goals.
- 8. Can I invest funds from my Individual Retirement Account (“IRA”)?
- Yes, there are IRA trust custodians who accept futures accounts; they are referred to as self-directed IRA’s. If you do not already have a self-directed IRA which accepts futures trading, you will have to open one with a trust custodian that does. Your Broker or ADMIS can offer assistance with this process.
- 9. Why Balarie Capital Management?
- Balarie Capital Management takes a consultative approach to the managed futures markets. We strive to put together portfolios that are diversified and fit your investment objectives. We have access to over 400 hundred different Commodity Trading Advisors, who trade diverse group of markets, strategies, and time frames. In addition, our affiliation with ADM Investor Services, Inc. provides investors with a name that they can trust.
ADMIS has long been recognized as a leader in the futures industry. For more than 40 years it has demonstrated its uncompromising commitment to excellence through the efficient trade execution, market research and clearing services provided to its affiliates and clients. ADMIS has built its reputation on a simple belief that by listening to its customers, it can not only meet – but exceed – their expectations every day.
ADMIS is a registered Futures Commission Merchant and a clearing member of all U.S. futures exchanges. It is a wholly owned subsidiary of the Archer Daniels Midland Company.