CTAs Continue To Let Down Investors

Date: Tuesday, June 28, 2011
Author: Stephen Taub, Institutional Investor

When the going gets tough, CTAs thrive. At least that’s what many of them want you to think. Trouble is, reality has not been keeping up with the marketing hype of late.

Through Tuesday, June 21, 16 of 21 Commodity Trading Advisors (CTAs) contained in a database of hedge funds were in the red for the month. And 17 of the 21 are losing money for the year. This woeful performance comes on the heels of May when all but one of the funds lost money.

What’s more, two of the CTAs haven’t made money since 2008 while another two funds are in the red since the end of 2008 despite generating gains last year. This is not how it is supposed to play out. At least according to the CTAs themselves.

In a presentation made earlier this week at The Innovative Alternative Strategies Conference in Chicago, it was pointed out that in the 33 months when equities were down 5 percent or more, managed futures were up 26 times, or 79 percent of the time. In the 63 months when equities were up 5 percent or more, managed futures were up 39 times, or 62 percent of the time. Through June 21, the Dow was down 3 percent for the month, the S&P 500 lost 3.7 percent and the Nasdaq Composite was off 5.2 percent.

“They are still living off of 2008,” sniffs one investment advisor, pointing to perhaps the brightest moment for CTAs, when many of them made money while the rest of the investment world imploded. Eight of the nine Global Macro funds contained in the database are also all down for June and all but two are in the red for the year. Many of them had their roots in commodities or heavily use commodities in their strategy. Even so, it is hard to fault them. They all made money in 2010 and all but one were in the black in both 2009 and 2008 (different funds lost money in each of those two years).

The worst overall performer so far this year within this particular database is Mount Lucas Management LP’s MLM Macro Fund. It is down more than 6 percent this month alone and more than 21 percent for the year. Keep in mind that the firm started out in 1986 as a futures specialist. Its first product was an actively managed diversified futures program, according to its website. Two years later, it launched the MLM Index, which it calls the first price-based benchmark for managed futures.

The second worst performing fund this year is Altis Fund Ltd, down 20 percent. As of the end of May, the firm had $1.48 billion under management. Through May its Global Futures Portfolio was down 18.46 percent. The firm’s best years were from 2002 to 2008 when it generated gains ranging from 20 percent to 52 percent in all but one year; in 2004 it was down 1.3 percent. The firm was founded in 2001 with just $1.2 million in assets by Zbigniew Hermaszewski, Natasha Reeve-Gray, Alex Brunwin and Stephen Hedgecock.

Given its earlier astounding success, it is no surprise, then, to find it in the portfolio of the Altegris Managed Futures Mutual Fund, a mutual fund with $755 million under management even though it was only launched nine months ago. Its prime market is the impressionable Main Street set, given its $2,500 minimum investment. It has a 5.75 percent front end load and 2 percent expense ratio. But, this does not include the expenses of the underlying funds in the portfolio. Alas, the fund is down 7 percent year-to-date. Yikes! The concentrated fund has investments with five managed futures firms. And Altis Partners accounts for 14 percent of its assets.

In addition, Quantitative Investment Management (QIM), which accounts for more than 21 percent of assets, is down about 5 percent for the year.

Altegris’ largest holding is Winton Capital Management, accounting for nearly 32 percent of assets. You can’t fault the fund for holding Winton, also one of the best performing CTAs over the years. In fact, its main fund is one of those four that are making money this year, up 1.64 percent through June 21.

However, given the volatility of CTAs and Altegris’ huge expenses, retail investors should think long and hard before sending off their checks, despite the long-term stellar records of the underlying funds.