If you are a Commodity Trading Advisor (CTA) or an alternative investment advisor looking for the right words and the proper context for promoting the potential investment benefits of CTAs in your marketing communications, what do you say? Try these seven bullets:
1. Enhanced Returns During Stock Market Declines
According to Arthur P. Bartholomew III, a CTA manager and co-creator, with Terry Young, of the CALMAR Ratio, “An index of managed futures and commodities outperformed the S&P 500 Index after the seven most volatile periods of the stock market in the last 25 years.”
Source: CME Group. Lintner Revisited: A Quantitative Analysis of Managed Futures. The S&P 500 Index is an unmanaged market-weighted barometer of U.S. stock market performance; as index of leading companies and industries, it dominated by large-capitalization companies. The Barclay BTOP 50 Index seeks to replicate the overall composition of the managed futures industry in trading style and market exposure.
In 2008, the average managed futures hedge fund in Morningstar’s database returned more than 19%, when every other asset class besides government bonds experienced losses.” (Managed Futures Category Handbook, 2013.)
2. Non-Correlated Returns to Stocks and Bonds
While the average returns of CTAs are not independent of stock market returns, over the long-term, the average correlation of CTAs to equities is zero. (Winton Capital Management.)
3. Reduction of Portfolio Volatility
In the yin and yang of investing, while one asset class goes up, another other asset class may go down. Managed futures invest across a broad spectrum of asset classes with the goal of achieving alpha.
4. Institutional Investment Use
Long used by pension, foundations, and Harvard, Yale, Stanford endowments.
Institutional investors started placing assets in CTAs several decades ago. As of December 31, 2014, institutional investors held nearly one-third of their assets in alternative investments, including CTAs.
5. Global Access More Than 500 CTAs
Investors may also take strength in the broad global diversification of CTAs in which to potentially invest. There are more than 150 liquid and transparent futures products across the globe, including stock indexes, fixed income, currencies, energies, metals, and agricultural products.
6. Regulatory Oversight by the CFTC, NFA, and FCA
Potential clients may also want to know that Commodities Trading Advisors are regulated not by one but by several agencies.
The Commodity Futures Trading Commission (CFTC), a government agency, “Seeks to foster open, transparent, competitive, and financially sound markets, to avoid systemic risk, and to protect the market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act.” www.cftc.go
National Futures Association (NFA) is the self-regulatory organization for the U.S. derivatives industry. www.nfa.futures.org
In the United Kingdom, the Financial Conduct Authority (FCA) regulates financial firms and seeks to maintain the integrity of the UK’s financial markets. www.fca.org.uk
7. Better Tax Treatment
Managed futures also receive better tax treatment than other managed investments: 60% long-term, and 40% short-term capital gains, regardless of holding period, as governed by Section 1256 of the tax code.
By contrast, says Morningstar, “Hedge fund investors must file a K-1 partnership tax form, which could take months to obtain and could also result in non-tax-deductible expenses.
Hedge funds structured as limited partnerships generally pass through the net tax characteristics of their underlying investments, and are taxed each year regardless of distributions.”
Important Risk Disclosure For Alternative Investments
Past performance is not necessarily indicative of future results. Futures investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone.
The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.
A CTA For CTAs
The above seven points are not meant to be exhaustive, but should be used a start as build out your pitch book, fact sheets, eBooks, email marketing, blog posts, and website in educating and informing your potential clients.