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Choosing the CTA that is right for you

Categories:
  • Managed Futures 101
  • Investment Perspective

I remember very clearly when I first decided to get involved in managed futures on a personal level.  I had watched in both amazement and fear as our customers who were involved in these investments would handle the daily and weekly movement with such ease, even as the markets would swing wildly both ways:  never saying a word, watching huge losses come back and morph into huge gains, and sometimes-maybe inevitably so-quite the opposite.  To watch it was one thing, but to be involved personally was quite another.  We, as a brokerage firm, were very fortunate at the time to be monitoring excellent CTAs (Commodity Trading Advisors) who were in their element, managing small fortunes for customers who had both the economic stability and the intestinal fortitude to handle, understand, and appreciate what these CTAs to whom they gave millions of dollars were doing for them.  The year was 2008…

It has been well documented that in the years since, the market place has changed dramatically.  What once was considered a “safe” investment in the stock market is now looked at with trepidation.  Real estate prices have erased virtually all of their gains from the decade prior and global uncertainty has made investing an absolute nightmare for those looking for a place to harbor funds and navigate in such gloomy conditions.

I decided that I would take the plunge into managed futures in April of 2008.  I had absolutely no idea that in 6 months the United States economy would begin a freefall, the likes of which had not been seen since the Great Depression.  I was getting nowhere with my stock investments because I had no time to manage them and my friend, with whom I had entrusted my account, had bigger fish to fry in terms of accounts he had under his belt.  I thought it over with my aiSource partner, Nick, and then discussed it with my wife one evening out for dinner.  The decision had been made to withdraw funds from my retirement account (a huge tax benefit, by the way, should things work out) and open a managed futures account to have managed by one CTA we had watched for several years.  He traded many products, the main one being mini s&p futures contracts, and I would finally be able to see how having a managed futures account felt from a customer standpoint and not just as a advisor.  To say I had a lot to learn was an understatement.

We chose this CTA because, at the time, he had a good track record, seemed to make money most days, and rarely took overnight positions.  It was mostly day trading and I felt like I could handle the movement.  What I didn’t realize was that the volatility of the markets were unbelievably emotional and hard for me to watch (even though I had been doing it for twelve years as a advisor) and, while the CTA did make money, it was too much stress and we were way too highly leveraged.  Fast forwarding to September-October of 2008, 90% of our gains were wiped out in a matter of days, but overall, we were still positive and just needed to have our heads stop spinning to understand what we had just experienced.  The one thing I knew, despite what had happened so quickly in the devastation of those three crazy days, is that we had stumbled upon an investment opportunity that was unmatched and would be something that I would expand greatly upon for the rest of my investing career.

In the years since our initial foray into managed futures, we have learned many valuable lessons and opened many more accounts with different CTAs.  The biggest question mark for me is deciding which program to invest with.  “Now that I’ve identified that I want to be involved with managed futures, who should I choose to work with?  What program is best suited for me?”  These questions are key to getting started the right way.  My suggestions are:

  1. Define the program’s worst historical drawdowns and realize that they could surpass that on an outlier month.
  1. Get to know the CTAs portfolio manager.  Find out what his or her background is and why they seem qualified to trade for you.
  1. Ask questions until you are comfortable investing.

AiSource’-to avoid a shameless plug-is the perfect place to start looking for and learning about managed futures investments.  We have both the actual experience and the knowledge to lead new and seasoned investors alike to a good investment fit.  Many of the CTAs and programs on our website we have personal investments with already and can answer some of the more obscure questions that many other advisors cannot.

One final thought:  managed futures is not fool proof.  It is difficult, risky, and is not suitable for everyone.  That being said, the returns can be unmatched and if managed properly, are an amazing part of a portfolio.  I say this in regards to my own personal portfolio and experience and I would recommend it to anybody who has the financial wherewithal to have even a modest sized investment or retirement account.

 -Jon Marcus

President, aiSource

Past performance is not necessarily indicative of future results. Trading commodity futures, options, and foreign exchange ("forex") involves substantial risk of loss and is not suitable for all investors. Please consult a managed futures specialist prior to investing.

Disclaimer: Past performance is not indicative of future results. Futures trading involves substantial risk of loss and may not be suitable for everyone. By no means is this newsletter/blog post offering any investment advice or suggesting to make any trade recommendations. Please consult an aiSource advisor prior to opening any managed futures accounts.


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Past performance is not necessarily indicative of future results. Trading commodity futures, options, and foreign exchange ("forex") involves substantial risk of loss and is not suitable for all investors. In no way is the advisor of the month a direct recommendation of aiSource or any of its affiliates. Please carefully review the disclosure documents and any other promotional material prior to investing with any program. Managed accounts and/or managed futures are very risky and may not be suitable for all investors. Please consult with a Managed Futures specialists prior to investing.