Individually managed futures continue to be one of the few asset classes where performance does not depend on a bull market in stocks or bonds. Futures traders can go short in any given market just as effortlessly as going long. This gives professional futures and options traders the opportunity of capitalizing on bull or bear markets. It is also why many pension funds, university endowments and family offices make managed futures an essential part of their portfolios and why the amount of money managed by commodity trading advisors (CTAs) continues to grow.
In our October blog covering individually managed accounts we explained the four major trading styles that professional money managers use. (Click here to read about different trading styles.) As we outlined in this blog, combining professional money managers with different trading styles helps to smooth the overall performance of a managed futures portfolio.
Mixing markets and styles helps smooth performance even further. To illustrate, we are going to use two of the CTAs we follow closely: Goldenwise LLC and Wharton LLC.
Solid Diversification Using Just Two CTAs
Goldenwise LLC is domiciled in Canada and is run by Chief Investment Officer Huakum Ding. Mr. Ding is Chinese, and has 7 years of experience trading global financial markets as well as a background in quantitative investment, quantitative strategy and risk management.
This program’s overall goal is to generate superior returns with low correlation to traditional asset classes. Goldenwise trades global equity and volatility indexes with strategies designed to capture short-term and mid-term market inefficiencies and mispricing. These strategies are proprietary and employ combinations of relative value, trend following and mean reversion techniques.
Wharton is an Illinois LLC founded by Robert D. Wharton. Mr. Wharton is a co-managing member of Wharton LLC along with Jeffery Apel, who is also a managing member. Mr. Wharton is an experienced floor broker specializing in agricultural commodities and livestock and uses a combination of technical and fundamental analysis to make his trading decisions.
Mating these two programs provides diversification both in terms of trading style and markets. Goldenwise trades international stock markets and volatility using computer-generated quantitative signals. Wharton trades agricultural commodities using fundamental and technical analysis that is filtered through the real-world experience of a floor trader. What we get is two CTAs trading two separate markets with two completely different trading styles.
Here is the combined performance of both CTAs using The RMB Group’s Solstice CTA evaluation engine. Goldenwise has a 2/3rds weighting in this portfolio.
Wharton’s maximum losing period (known as a “drawdown”) has been 12% on a monthly basis. Goldenwise’s maximum drawdown has been 10.7%. The maximum drawdown of the combined program is 10%. The monthly distributions of gains and losses in the combined program are reflected in the graphic below.
While past performance is not necessarily indicative of future performance, combining these two programs appears to give investors greater diversity with a slightly lower risk. However, each individual investor needs to decide which CTA or combination of CTAs is right for them and should read the appropriate Disclosure Documents (similar to a Prospectus) before investing.
Call us for more information on the CTAs mentioned above or check with one of the managed account specialists here at the Rutsen Meier Belmont (RMB) Group and ask them to put together a sample portfolio of some of the other CTAs we follow for you. Then track the real-time performance of this sample portfolio on our website, www.rmbgroup.com. This will help you get a feel for how managed futures can help diversify your stock and bond holdings, without having to commit a single dollar upfront.
Call the RMB Group toll-free at 800-345-7026, direct at 312-373-4970 (country code 001) or send an email to email@example.com, tell us a little about your current investments and one of our managed account specialist will be happy to put together a sample managed futures portfolio for you.
Want to know more about individually managed futures? Click here to download our 30-page booklet, Opportunities Outside the Stock Market, which will teach you all the basics of this fast-growing asset class in an easy-to-read format. There is also a short companion video available as well.