During the past seven years the money professionally managed commodity futures markets has more than quintupled! According to hedge fund tracking company Barclays, assets under management grew from approximately $ 41 billion in 2001 to more than $ 219 billion today!
As the world demand for commodities continues to heat up and more investors (institutional and individual) will begin to receive the goods as a reasonable investment vehicles, this trend is expected to continue. This growth has also raised the need for ways to select a commodity trading advisor. In this article, we describe what we believe are some of the best tools and methods available to individual investors when choosing a managed futures products.
Let's first define what is a managed futures and what they are. Managed futures are not stocks or ETF's, which is just an investment in commodities. Managed futures accounts are investments in funds that invest mainly in effect, since the contract for goods or financial instruments. Goods can include sectors such as food, energy, raw materials and financial instruments such as interest rates and stock indices.
leverage, risks and rewards can be (but not always) much greater when investing in futures markets vs. burze.Nacionalni Futures Association and Commodity Futures Trading Commission regulates the managed future investments in the U.S. (unless the company / fund have "liberated" status). Regulated companies held commodity trading advisors (CTA) or Commodity Pool Operators (CPO's) license, but remember, just because the company carries a license in any way approve of future results. Futures trading can carry large potential risks and is not for everyone. Investors should be aware of all risks before investing.
Finding a list of potential managers for sorting is quite simple if you know where to look. Companies such as Barclays Trading Group, Stark Research, Autumn Gold and Altegris investment manager database information available. AutumnGold summary for free (with registration) on-line database of over 450 programs. Also, programs can be sorted by a wide range of parameters, such as minimum account size, assets under management and a variety of performance measurements.
The only problem I see with online databases that can be somewhat overwhelming to try to narrow down your choices to just a few managers. To simplify the process, we want to share what we think are some of the best performances.
Our first recommendation is to forget to return! Least significant statistic is often a manager return. How do you ask? What is important is the risk adjusted return. Just because someone bet the farm and got lucky does not mean it's a wonderful idea. Sooner or later (usually before) the inevitable ruin will happen to the manager betting too aggressively.
There are many traditional risk-adjusted return measure, the most popular of which is omjer.Sharpe Sharpe ratio compares the return relative to the volatility of the underlying investments. Although we are in agreement with the Sharpe ratio is the logic, we believe that a serious nedostatak.Nedostatak that the Sharpe ratio only views past volatility and do not try to predict future volatility. As a result, we feel the Sharpe ratio does not provide adequate view of the potential risks involved in the program.
a good example of this comes from the world "option writers" (those who sell options). Since most options expire worthless end, it is not uncommon for managers to sell options that have excellent Sharpe ratio. They can have a smooth looking equity curves that are produced for many years, but only because the equity curve looks smooth and consistent does not mean it will stay that way. What has happened is pointless if you do not have the same results. Option sellers with excellent long term track records tend to have a quick, spectacular "blowups." Problem is, in our opinion, that the past volatility is not a reliable indicator of future volatility.
is a reliable predictor of what you ask? In our opinion, one of the best predictors of the volatility of the "margins and capital" (MTE). MTE tells you approximately how much your investment will be used for margin purposes. This number will vary from day to day manager, but you can get in the average range. If, for example, managers MTE was 10%, this means that for every $ 100,000 invested manager uses about $ 10,000 for this margin. Keep this in mind, the exchange set the margin on the basis of approximations rizika.Veća exchange sees risks in the contract are set higher margins. We encourage you to think as an exchange and increase your expectations for the potential risk as the MTE goes higher. If we go back to the example of the ability of writers with exceptional Sharpe ratio, you'll also see that they often have high MTE ratios. We believe that these high MTE ratios are the tipoff that could have avoided many catastrophic scenarios. Once again, just as the exchanges often raise margin requirements as the expectation of volatility increases, so we see the potential for volatility (risk) that is more like MTE grows.
Another important use of the MTE is reduced to pure mathematics. If you have two managers that $ 30,000 back, but a used $ 30,000 in margin to do so, and the other used $ 60,000 in margin to do so, then the results are different. Based on the margin using a manager's return was twice as high as second. It is important to note, because often managers can appear to have similar performance, but when you dig down into my margin usage you see a big difference.
What is the ideal MTE? In our opinion, we do not like to see the margins on capital ratios well above 10%. This is the low end of the spectrum for the future of managed accounts and reduces most of the managers. While it is true that low MTE ratios are not a guarantee of lower risk, we believe that, at least, it's probably a decent gauge of sound risk management. Once again, it is our belief that as the MTE rises so that the potential for risk. There is also related to risk measurement, which is often called "portfolio heat" which uses similar concepts.
In short, what we propose is to compute returns not based on what the manager reported, but on the basis of return on margin (you should also calculate the risk and drawdown in the same way). This will level the playing field and allow you to compare apples-to-apples. We also have the benefit of being on the conservative side of the MTE spectrum, for us it means we will likely reject any manager with a ratio of 10%. Using this method can help you narrow down the list of choices for the handling of very quickly. After you've done it, then you can view and compare all other risk adjusted performance measures and to further enhance your choices. (At the risk in this article too long we will save other risk adjusted measure for future discussion rate ).
We want to warn once again that, in the end, no measure of guarantee or insurance against risks and losses. Past performance is not always indicative of future results. Futures' trading involves risks and is not for everyone. We are simply sharing with you what we think is the best way to choose a manager.
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