Facts for Investors
History in the Making on a Global Scale
As the global marketplace evolves at the fastest rate in history, unprecedented profit opportunities have emerged around the world.
The collapse of the Iron Curtain and the end of the Cold War have allowed the influence of Western economic and political systems to take hold, creating market economies in Eastern Europe, Asia, South America and the Russian Republics. These economies, struggling to compete with the rest of the world, are causing massive changes in worldwide supply and demand for commodity and financial products as they emerge.
In order to deal with the dynamics of such changes and deal with the needs these economies demand, new futures exchanges and futures contracts are emerging on a regular basis.
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Worldwide Market Forces are Leading to Change
In the past, the American economy was unique in the opportunities it provided to investors. Several developments, however, have changed this status :
- The failure of socialism, and the end of the Cold War
- The emergence of market economies in developing nations
- International telecommunication and computer networks
- Lower financial & industrial trade barriers
- Expanded & cost effective use of technology
- The development of "instantaneous" communications, such as; the Internet, faxing, satellite, transmissions, overnight carriers,
These developments have led to changes in the ways we do business
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- 24 Hour marketplace with international money flow
- Electronic markets
- Wide availability of domestic and foreign market information
- Easy access to international markets and investment products
- Increased foreign investments in the United States
- Increased United States investment in the international community
Unprecedented Investment Opportunities and Pitfalls
The commodity super cycle, which culminated a 25-year bear market decline in commodity prices in 2001, has now turned up as evidenced by a 100%* rise in the Commodity research bureau index of commodities since October of 2001.
This is the tip of the iceberg as emerging economies of Brazil, Russia, India, China and the former eastern European satellites of Russia join the global community. Three billion people entering the global workforce, looking to climb the economic ladder. Competing for the natural resources necessary to build out their countries, infrastructures and businesses. This incremental demand on top of virtually no excess capacity is creating once in a multi generational opportunity. However, what these commodity market moves mean to the global financial community (Stocks, bonds, and Currencies) is another story as increasing costs and inflationary pressures are squeezing profit margins and putting pressure on interest rates.
To complicate matters the world is awash in Fiat "faith based" currencies, the result of the closing of the Gold window by President Richard Nixon. Now, all major currencies in the world are backed by "nothing" other the full faith of the respective issuing government. Most of these aforesaid Governments are awash in liabilities, funded and unfunded which require a steady dose of inflation to reduce future liabilities. In addition they are issuing new debt and "fiat money" at an unprecedented pace. Although Fiat currencies have been tried many times in history, they have "NEVER" succeeded as politicians and bankers have always succumbed to the siren song of being able to print wealth. Like the ancient alchemist who tried to turn iron into gold, it never worked. Examples of this can be seen littered throughout history, such as the German Weimar Republic Argentina, and India. People hauling around money in wheelbarrows, it always ends in tears.
These massive fundamental forces are creating opportunities in all markets, long and short. There will be massive moves up and down depending on the market forces affecting that particular market sector. These opportunities require professional management, both to capture opportunities* and manage the risks* involved. Thus, Alternative Investments are emerging as the answer to this unprecedented volatility, as the potential to make investments and profit* in declining and rising markets provides the global investing community a vehicle for their investment portfolios.
* Past performance is not necessarily indicative of future results. The risk of loss in trading commodity futures can be substantial.
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Market Diversification Enhances the Opportunities of Traditional Portfolios
Domestic and international futures markets provide investors efficient access to markets unavailable in traditional investment portfolios of stocks and bonds .
Managed futures offer essential portfolio diversification, providing access to an array of markets and contacts. A few examples are:
||S&P MidCap 400
||Major Market Index
These futures markets are but a few of the markets available to investors worldwide.
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Managed Futures Help Create More Balanced Portfolios
As the global marketplace develops so do the needs of the investor to create proper portfolio diversification. Until recently, traditional investment vehicles such as stocks, bonds, and real estate seemed to be sufficient for adequate diversification. With the creation of new investment vehicles, economic forces from around the world can now be combined to significantly influence your investment portfolio performance. Traditional approaches to investing, therefore, are no longer enough to ensure the proper, necessary balance to achieve maximum safety, diversification and return.
Today's modern portfolio, theory and management require the addition of global markets and alternative investment vehicles (equities, futures and commodities, and financial instruments) to complete a portfolio mix. That is the reason why a record number of individuals, institutions, pension funds and professional portfolio managers are turning to alternative investments and professionally managed futures. Some of the best benefits include:
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- Proven long-term track records
- Risk reduction and return enhancement through modern portfolio diversification
- An investment that can capitalize on rising and falling market conditions
- The leverage necessary to allow investors high rates of return combined with the same risk associated with that of a high quality stock
- Access to global markets in a cost effective and efficient manner
- Professional risk management
- Low correlation to stock and bond performance
Unique Benefits Provided by Professionally Managed Futures
The conclusion that managed futures should be included in traditional portfolios of stocks and bonds was initially reported in a 1983 study conducted by Dr. John E. Linter, a Harvard Business
School professor of finance. Dr. Lintner's study stated that, by including managed futures in an investment portfolio ,
"... reduces volatility while enhancing returns" and that such portfolios "show substantially less risk at every level of expected return than portfolios of stock (stocks and bonds) alone."
More recently, Dr. Thomas Schneeweis conducted a study completed in June 1997 entitled "The Benefits of Managed Futures." Dr. Schneeweis, a professor of finance at the University of Massachusetts, built upon Dr. Linter's work and conclusions by including new performance data generated from 1985 to 1995. His study provides the supporting information to conclude that the inclusion of managed futures in traditional investment portfolios can achieve the following benefits:
- The reduction of portfolio volatility risk, and the enhancement of returns.
- Managed futures trade in markets, which offer investors the same market integrity and safety as stock and bond markets.
- Managed futures are no more risky than traditional equity investments.
- The special benefits of managed futures are derived from the risk and return opportunities that managed futures offer as additions to traditional stock and bond investment.
As stated by Dr. Schneeweis,
"Simply put, the logical extension of using investment managers with specialized knowledge of traditional markets to obtain maximum return / risk tradeoffs is to add specialized managers who can obtain the unique returns in market conditions and types of markets not generally available to traditional asset managers; that is managed futures."
This work was again built upon by Dr Thomas Schneeweis (Professor of Finance, CISDM/SOM, University of Massachusetts) and Georgi Georgiev ( Ph.D candidate, CISDM/SOM, University of Massachusetts) and surveyed a period from 1990 to December 2001.
Their conclusions were; "This academic research looks at the role of managed futures to maximize the risk/return ratio within a diversified portfolio. With an impressive index performance of 4.19% over 2001, the figures throughout this research study demonstrate the appropriateness of ensuring that managed futures have a place in any well-diversified portfolio."
This research paper provides evidence that managed futures:
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- Reduce portfolio volatility risk.
- Enhance portfolio returns in economic environments in which traditional stock and bond investment media offer limited opportunities.
- Participate in a wide variety of new financial products and markets not available in traditional investor products.
Worldwide Acceptance of Professionally Managed Futures
Financial experts around the world have come to recognize the value of alternative investments and professionally managed futures/forex as a part of overall modern portfolio management. Professional futures/forex money managers (Commodity Trading Advisors) are becoming an increasingly important component in the overall performance and stability of investment portfolios worldwide.
Growing numbers of individuals pension funds, institutions, banks, and municipalities have effectively included professionally managed futures as an important new asset class to compliment their traditional portfolios (stocks, bonds, real estate, etc.). The massive growth patterns in the European Union, Asia, Russia and South America show that this trend is not confined to the United States.
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Investors Face Important Decisions
Recent tremendous growth in the US stock and bond markets can be attributed, at least in part, to the changing scope of the international marketplace as we enter the new century. From the famous "Black Monday" in October 1987 to the record-breaking highs of 2000, major events in stocks, bonds and commodities continue to occur. Interest rates which approached 20% in the early 1980's contrast today's low inflation environment, forcing many investors to re-evaluate the strategies they use when they invest their portfolios.
To that end, alternative investment diversification and non-correlation of investment vehicles have become much more important than ever in creating successful investment plans. Traditional safe havens such as banks and treasury securities may no longer can meet the needs of the average investor. Combinations of inflation, fiat currencies, and taxes have effectively reduced the "no risk" portion of investment portfolios. Safety and performance are now generated through the proper diversification into alternative investment assets, professionally managed trading and risk.
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Structuring a Managed Futures Portfolio
Working closely with a managed account specialist will enable you to learn about a wide spectrum of professionals who meet our demanding criteria. Before a CTA is ever presented to you, they must meet the highest standards.
As managed futures and Forex specialists, we track the results of both established and up-and-coming Commodity Trading Advisors (CTA's). We have found that combining both types of CTAs into a portfolio allows the client to have stability while still benefiting from the explosive growth potential of an emerging talent.
In order to design a customized portfolio management solution, which fits your investment situation, extensive analysis is required. The careful assembly of your client profile, including risk reward parameters, and objectives is used to construct your model portfolio. The result of the analysis is a single or blended advisor structure capable of meeting your objectives.
The highlights of the screening and analysis program include:
- Initial screening is performed by developing a client profile and correlating it with the rankings and statistical performance measurements detailed in Daniel B. Stark & Company's "Star 300."
- Further screening involves a due diligence evaluation of several qualitative and quantitative variables:
- Management styles employed.
- Track record.
- Risk management policies.
- Types of markets traded.
- Experience profile.
- Operational procedures.
- TraderView works closely with clients to develop a final selection of advisors compatible with the client's goals, risk tolerance and existing portfolio. Asset allocation models and correlation models are used to determine the optimal advisor combination.
Portfolios are continuously monitored to observe whether the performance and risk parameters established by the investor are being met. A dynamic management philosophy and occasional portfolio adjustments are essential to long-term investment success.
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Secrets of Success in Managed Futures Client Awareness Factsheet
For the client to realize the historical benefits of any program, they must be prepared to remain invested over a statistically significant period of time. A managed futures investment is long term in nature. Due to the cyclical nature of the economy, professionally managed futures are also cyclical. Most managers have an 18 to 36 month cycle, and in order to fully benefit from your investment properly; you must view it as such.
In choosing a manager, you must carefully review his or her track record and accept the level of drawdown contained therein before investing, in both dollar terms and time span. It is a waste of the trader's time and the client's money if the account is closed because of short term declines which still lie within the parameters of the program and historical track record.
The overall performance of any managed futures account must be viewed over 6 to 12 quarters. Reviews should be conducted once a month to ensure against system breakdowns. Your representative at TraderView will review your account daily and discuss your account or accounts with you on a regular basis that fits your schedule (weekly, monthly, quarterly, as you desire)
It is considered good practice to buy the drawdown of experienced traders with proven track records. It is much like buying a pullback in a bull market and can reduce your downside risk and increase your returns over the long run.*
*Past performance is not necessarily indicative of future results. The risk of loss in trading commodity futures can be substantial.
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Full Customer Service in Managed Futures includes:
1. ADVICE IN SELECTING COMMODITY TRADING ADVISORS ("CTA") AND OR COMMODITY POOL OPERATOR ("CPO")
Help clients narrow the field of choices by matching managed futures investment objectives to the client's objectives.
2. EDUCATING CLIENTS
Clarify the purpose and fundamentals of investing in professionally managed futures.
3. MONITORING INVESTMENTS
Keep clients apprised of performance and compliance with established guidelines.
4. REASSURING THROUGH TOUGH TIMES
Help clients stay the course, address concerns and questions, and emphasize patience during downturns.
5. PROVIDING EXPERTISE
Offer experience and knowledge to clients about investing in managed futures, and the futures markets.
6. IDENTIFYING NEEDS AND SETTING GOALS
Understand client's needs and investment philosophy; help clients set goals; remind clients of their commitment to and importance of goals.
7. COMMUNICATING REGULARLY
Staying in touch with regular calls and written correspondence.
Monitoring Commodity Trading Advisors and the portfolios they control; and troubleshoot as needed.
Give guidance suited to a customer's qualification.
10. WORKING WITH RISK
Help clients determine risk tolerance and match client's risk level with proper Commodity Trading Advisor to minimize risk.
11. ALLOCATING ASSETS
Advise clients on how to balance and diversify among different Commodity Trading Advisors within a managed portfolio.
12. PROVIDING RESEARCH
Apply specialized capabilities and information available to research Commodity Trading Advisors and their programs.
13. DEVELOPING RELATIONSHIPS
Build trust by knowing the client personally and establishing rapport and comfort level through the demonstration of professional expertise.