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Frequently Asked Questions
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Want More Information?
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If you can’t find the answer to your question here, please feel free to contact one of our Managed Futures Investment Specialists.
We’re happy to answer any questions you may have with no obligation whatsoever.
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Q:
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What are Alternative Investments?
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A:
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Alternative investment is a broad term used to describe a non-traditional category of investments including Managed Futures, commodities, hedge funds, financial derivatives, real estate, private equity and venture capital. In general, it refers to anything that is not stocks, bonds, cash and money market instruments.
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Q:
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What are Managed Futures?
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The term Managed Futures refers to a class of investments rooted in the global futures markets. Professional money managers known as Commodity Trading Advisors (CTAs) utilize a mix of automated decision systems and discretionary trading strategies to exploit the profit potential of specific market conditions.. It should be noted that CTA strategies are typically developed to produce returns in both up and down markets.
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There are several distinct benefits to adding Managed Futures to a well-balance portfolio:
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- Potential for superior returns regardless of stock market conditions
- Reduced overall portfolio volatility risk
- Low Correlation to equity investments
- Transparency with respect to transactions and money flows
- Opportunity to participate in global markets
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It has become commonplace to see Managed Futures as part of a well-balanced portfolio for institutions, banks, pension funds and the like. With the evolution of the futures investment landscape, a number of excellent Managed Futures-based investment products are available to a broader group of investors. As of May, 2008 BarclayHedge reported that greater than $185 billion was invested in Managed Futures.
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Q:
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What does Correlation mean?
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Correlation measures the co-variance, or relationship between the price fluctuations of two assets in relation to one another. A strong relationship in price movement is said to have a high correlation, and likewise, asset prices that tend to move in opposite direction are said to have a negative correlation. Correlation is measured between 1.0 and -1.0.
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As applied to portfolio theory, one should not have a significant amount of the portfolio in highly correlated investments (either positively or negatively). In order to balance a portfolio well, the relationship between major investments should be uncorrelated to the extent possible. That means that regardless of price movements in one asset class, there are no implied impacts in those with low correlation.
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Low correlation is one of the reason Managed Futures are such an attractive investment alternative in virtually any portfolio. It is easy to find examples of Managed Futures investments that are uncorrelated with typical equity investments. Correlations in the range of 0.1 to -0.1 are commonplace. This is a much more powerful diversification technique than distributing long investments across industry sectors or geographic regions.
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Q:
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What is an Introducing Broker (IB)?
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A:
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A futures broker who has a direct relationship with a client and has partnered with one or more Futures Commission Merchants (FCMs) and/or other IBs to manage day-to-day trading activities. Pacific Futures & Capital is an Introducing Broker. We have relationships with multiple FCMs (FCStone, ABN AMRO Clearing) as well as a close partnership with another IB (Capital Trading Group), to manage the execution of trades and all daily client account activities.
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What is a Commodity Trading Advisor?
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A:
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An individual or a firm registered with the Commodity Futures Trading Commission (CFTC) that receives compensation for giving advice on options, futures and the actual trading of Managed Futures accounts. Registration for CTAs is done through the National Futures Association (NFA), a self-regulated organization responsible for oversight of the Managed Futures industry.
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Q:
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What is a Futures Commission Merchant?
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A:
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A merchant involved in the acceptance and execution of commodity buy and sell orders for future delivery of commodities related to the futures contract market. FCMs can also hold clients’ money or securities in margin accounts in accordance with the rules of the exchange on which they are trading.
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Q:
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What is the S&P 500 Index?
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The S&P 500 is an equity index made up of 500 large cap stocks, mostly American, all traded on the NYSE or NASDAQ. It is maintained by Standard & Poors and is considered to be a good indicator of U.S. stock market performance and to reflect the return/risk profile of large cap stocks. The source of the data used on this website is Yahoo!, using the symbol ^GSPC.
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What is the BlackRock Bond Index?
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The BlackRock Bond Index is a mirror of the Lehmann Aggregate Bond Index and is used as a benchmark for bond performance. It is comprised of government securities, corporate securities, asset-backed securities, and mortgage-backed securities. The maturity date for all securities in the index is greater than one year. The source of the data used on this website is Yahoo!, using the symbol WFBIX.
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Q:
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What is the Barclay CTA Index?
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A:
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The Barclay CTA Index is a leading industry benchmark of representative performance of commodity trading advisors. There are currently more than 500 programs included in the calculation of the Barclay CTA Index, which is unweighted and rebalanced at the beginning of each year.
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To qualify for inclusion in the CTA Index, an advisor must have four years of prior performance history. Additional programs introduced by qualified advisors are not added to the Index until after their second year. These restrictions, which offset the high turnover rates of trading advisors as well as their artificially high short-term performance records, ensure the accuracy and reliability of the Barclay CTA Index.
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Q:
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What is the Barclay Global Database?
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The Barclay Global Database is the largest, most comprehensive and up-to-date downloadable database specific to modern alternative investments. Data is refreshed twice-monthly with a complete universe of over 5,000 hedge funds, funds of hedge funds and managed futures. Inclusion in this database is voluntary. The database is comprised of those hedge funds, funds of hedge funds and managed futures investments whose management chooses to report their results to BarclayHedge. The source of the data is BarclayHedge.
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