Archive for July 2011
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U.S. Stock Futures Rally on Debt Hopes
Managed futures ideal place to conceal from the current
Here's a fact. If an investor had his money in a managed futures fund in the course of the global financial crisis from October 2007 to March 2009, his portfolio would have climbed about 18% because the S&P 500 tanked 50%.
For those within the know, the impressive outperformance isn't much of a surprise. The method, which involves taking both long and short posistions across numerous futures from corn to cocoa to currencies, turned an identical trick inside the two-year tech wreck initially of the century. It has also boasted positive returns during other periods of severe equity market stress including the Long-Term Capital Management mess in 1998, the primary Gulf War in 1990 and the fourth quarter of 1987, which included Black Monday, a in the future stock rout worth greater than 20%.
With volatility abounding amid sovereign debt crises in Europe and the u. s. , they're about to expose their worth again and yet for nearly all of Canadian investors, managed futures and other alternative strategies are unknown quantities which have remained largely ignored despite their solid track records in difficult times.
While there were good reasons for that previously, the landscape for alternative investing in Canada has evolved in recent times to give more opportunities for average investors who desire to complement their traditional holdings with strategies proven to combat risk.
“There are loads of times we do not make people money, but through the years, alternative strategies like ours should generate profits for investors,” says Toreigh Stuart, chief executive officer of Man Investments Canada Corp. a completely-owned subsidiary of Man Investments Ltd, one of the crucial largest hedge fund managers on the earth. “And even perhaps more importantly, they need to provide a smoother ride by reducing overall volatility whether markets are rising or falling.”
One, if not the most important drawback of other strategies over time have been the inability of wide-spread access to investors.
Until recently, most alternative products were available to accredited investors only. Unless you were an institutional investor or someone who has net worth exceeding $1-million or steady yearly income of $200,000 or more, there just weren't many options.
It didn't help that products available within the early days didn't perform rather well and infrequently misrepresented the strategies they were said to employ.
Today, however, there's a improving line-up of other products for non-accredited investors. The guy AHL Diversified Programme is a prospectus-based managed futures fund that offers both long and short exposure to globally traded futures contracts on physical commodities equivalent to grains, livestock, metals, energies and soft commodities similar to coffee, cotton, sugar and cocoa, in addition to financial assets reminiscent of equity market indices, government bonds and currencies. A future is an agreement to shop for something at a group price sooner or later. It's among the oldest hedging instruments in business, first utilized by farmers to secure prices for his or her crops.
The fund, which was launched in Canada in December 2009 and requires a minimum investment of $5,000, has returned 811% since first began trading globally in 1996.
Blumont Capital, meanwhile, offers investors a number of different alternative strategies for a minimum investment of $1,000, including a prospectus-based managed futures fund and equity neutral fund launched earlier this year, which holds long/short equity positions, with long positions hedged with short positions within the same and related sectors.
James Wanstell, Blumont's CEO, says Canada's alternative investment industry is a much cry from where it was even seven or eight years ago. Not just is it much fairer and more transparent than it was prior to now, the goods now being offered are regulated and more liquid than before. Simultaneously, the rustic has attracted and developed some great managers.
“Alternative products like managed futures are almost like a hunting rifle,” he says. “If you set it inside the hands of an inexperienced fool, they could blow their very own head off. But when you set it within the hands of an experienced hunter, it's amazing what they are able to do.” Still, due to their previous experience, many investors remain reluctant and look at alternative strategies as being nothing greater than highly risky investments.
Roland Austrup, president & CEO of Integrated Managed Futures Corp., one of many few investment firms within the country with a managed futures program, thinks there's a loss of familiarity with how these strategies actually work. With more access, he thinks investors will begin to see these strategies as how to limit risk, not add to it.
Often, people give attention to the truth that strategies like managed futures use leverage to trade futures, but Mr. Austrup says there isn't too many managers on the market that use the kind of embedded leverage they might use. For each $1-million in his portfolio, only $100,000 of that's had to support future positions.
Instead, he thinks it's more important for investors to acknowledge how managed futures correlate to other investments, particularly stocks, and mitigate risk.
The ability to move long and short across quite a lot of different assets supplies the power to become profitable in most market conditions, he says.
For instance, over the long term, there's no correlation to stocks, but in a bull market when the chance is obviously at the long side, the correlations will turn positive with both equities and managed futures rising.
Alternatively, in relation to a bear market, the correlations become negative to the good thing about managed futures, assuming they spotted the craze in time and went short.
“We don't see those environments as risks, but opportunities,” he says. “For us, risk is being at the wrong side of the market. It is not managing exposure if you have losses but getting out of positions in the event that they move against you and getting at the other side where there are opportunities.”
Mr. Austrup said his managed futures porfolios have gone a lot more neutral during the last few months as markets have taken a turn for the worst and portfolios have began to resemble what they'll have gave the impression of initially of 2008.
“We haven't tipped negative yet, we've just gone really neutral,” Mr. Austrup said.
Of course, none of which means that investors should sell their equities on the first sign of trouble and cargo up on managed futures. Indeed, the S&P 500 global index has gained 9.65% since October 1987 versus the Barclay's managed futures index, which grew by 8.42%.
That said, a portfolio allocated 80% to the S&P 500 and the remainder to managed futures netted an excellent better return of 9.83% over the identical period and likewise reduced overall volatility within the portfolio by greater than 3%.
While some pension funds and institutional investors have ratcheted up their exposure to alternative asset as high as 40%, it's expected that retail investors increases the exposure only slowly over the years.
“The unfortunate experience of retail investors to alternative strategies has not been fruitful and that they is probably not for every person,” says Mr. Wanstrell. But i can not imagine a portfolio without them.
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