Learn About Managed Futures
Q. What are Managed Futures?
A. Managed futures as a generalized term describes an industry comprised of professional money managers who use the global futures and options markets as an investment medium. These managers are discretionary, meaning they make decisions to purchase or sell particular managed futures investments on the clients' behalf, via a revocable power of attorney.
Q. What are Commodity Trading Advisors?
A. Commodity Trading Advisors, also known as CTAs, are a type of professional trader dealing with managed futures investments. CTAs trading managed futures are typically registered with the National Futures Association, or NFA, and give advice regarding the buying and selling of futures or options contracts.
Q. Who Should Invest in Managed Futures?
A. Managed futures are not appropriate investments for all investors. Before investing in managed futures, a particular investor's suitability must be determined. If an investor is deemed suitable, he or she will be provided with all of the necessary information to make sure both risks and possible rewards of investing in managed futures are understood. Generally, in addition to having the required risk capital, an investor needs to have realistic expectations about returns on a managed futures investment and tolerance to drawdowns that are prone to occur with managed futures products.
Q. Are There Special Risks Associated with Managed Futures?
A. Yes. Investing in managed futures carries certain specific risks of which every managed futures investor should be aware. In particular, it is important to understand that the high degree of leverage often obtainable with managed futures investing, can work both for and against a managed futures investor. The use of leverage can lead to large losses as well as gains in managed futures investing. In some cases, managed futures accounts are also subject to substantial charges for management and advisory fees. There are many other risks to consider with managed futures and with trading in the commodity markets. Investors should carefully study the disclosure document of the CTA before making any investment in a managed futures product.
Special Risk Disclosure Regarding Managed Futures
When considering managed futures investments, you should consider various risks including the fact that some managed futures products use leverage and other speculative investment practices that may increase the risk of investment loss, can be illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the investment manager.
In general, you should be aware that:
- Returns from some managed futures investment products can be volatile
- You may lose all or portion of your managed futures investment
- With respect to single manager products the manager has total trading authority over the managed futures account. The use of a single manager could mean a lack of diversification and higher risk
- Many managed futures investments are subject to substantial expenses that must be offset by trading profits and other income. A portion of those fees is paid to Altegris
- Trading involved with certain managed futures investment products may take place on foreign exchanges that may not offer the same regulatory protection as US exchanges
With respect to an investment in a managed futures fund, you should be aware that:
- There is often a lack of transparency as to the managed futures fund's underlying investments
- There is no secondary market for managed futures fund interests. Transfers of interests are subject to limitations. The managed futures fund manager may deny a request to transfer if it determines that the transfer may result in adverse legal or tax consequences for the managed futures fund
A managed futures fund’s Offering Memorandum or a CTA’s Disclosure Document describes the various risks and conflicts of interest relating to a managed futures investment and to its operations. You should read those documents carefully to determine whether an investment is suitable for you in light of, among other things, your financial situation, need for liquidity, tax situation, and other investments.
Keep in mind that the past performance of any managed futures investment is not necessarily indicative of future results. You should only commit risk capital to any managed futures Investment Product. Managed futures investments are not for everyone and entail risks that are different from more traditional investments. You should obtain investment and tax advice from your advisers before deciding to invest in any managed futures fund or program.