The futures markets have been successfully stabilizing prices of the underlying commodities for over 150 years. Without futures the risk of meeting an every day need for clothes, food, and fuel would always be subject to volatile price changes over short time frames. Sadly, we take for granted much of what we should be grateful for and we fear that which we can easily learn to love. Releasing fear will always be rewarded with the appearance of new potential. The potential has always been there, our ability to receive has changed. Like gravity, these are ‘Universal Laws’ that flow through and around us. How we interact with ‘Universal Law’ always determines the quality of every experience, including money flow! Nothing else is possible.
My capital is currently allocated within a mutual fund family;
why should I pay a traditional money manager?
Allocations within a mutual fund family are OK, but are assets truly diversified? Offsetting traditional portfolio risk using managed futures or non - correlated assets and investment strategies is the foundation of modern portfolio theory. Integrating non-correlating asset classes into a composite investment optimizes the total return with less risk than what you are probably doing. Managed futures are considered an asset class. They always march to their own drum, therefore only when well done, without exception they successfully manage portfolio risk. The key is ‘well done.’
Any advisor with resources to optimize your potential return under unknown market conditions while reducing volatility and risk is worth paying! If you disagree, test the advisor’s strategy relative to what you currently do and compare the difference.
If an advisor can:
- Improve your composite annual return by 5%,
- Reduce the standard deviation by another 5%,
- Improve the quality of returns, (fewer negative return periods of a shorter duration):
Would you be comfortable compensating them a percent of total assets, or a flat fee?
Prove it to Yourself
Evaluate any traditional investment, even those that include hedge funds or alternative investments other than futures/options/currencies etc. We can hypothetically reallocate anywhere from 3 to 20% to a limited risk managed futures investment. The demonstration consistently proves that the composite investment with managed futures has less volatility and risk. The earning potential over 3,5,8 and 10 years is dramatically improved.
An Impersonal Model
The data tables and graphics below represent 100% allocated to a Traditional Index (TI), then 20% re-allocated to a SafeMoneyMetrics® managed futures index. (80-20TISI). 100% allocated to the Hedge Fund Index and 20% re-allocated to an index created by SafeMoneyMetrics®. Finally 100% allocated to managed futures, or the SafeMoneyMetrics® index. The total return column is through the end of August 2010. We added a 100% allocation to managed futures for several reasons.
- People fundamentally consider stocks and bonds to be a complete portfolio. Especially when diversified among market sectors within the equity and debt markets. As the stock market moves, individual stocks within the same sector most probably move to various degrees in the same market direction. Market movement has a major impact on the movement of individual stocks. Similar relationships exist within debt instruments at different ends of the yield curve. Alternative investments having an underlying common theme also move in the same direction. (Real Estate, Energy Partnerships and Hedge Funds using similar markets).
- Managed futures investments have less of a direct relationship to movements of the market being traded. Superior managed futures investments only require talented traders.
- Contrary to popular belief, limited risk managed futures investments probably have less volatility than a portfolio of growth stocks.
Think about the following. Stocks and bonds are investments. Directly or indirectly, you are supporting growth of a company or an endeavor that supposedly serves humanity. Futures are products designed to manage risk of the underlying commodity. Managed Futures, hedge funds, mutual funds or managed accounts are by-products. You are getting involved with someone’s trading skill. Know the difference.
100TI
80-20TISI
100HFOF
80-20HFSI
100SI
2003
31.4%
18.2%
15.7%
10.2%
2.7%
2004
9.8%
6.7%
3.9%
3.5%
2.5%
2005
6.7%
8.7%
6.8%
9.1%
14.9%
2006
9.7%
9.2%
6.4%
6.8%
7.8%
2007
5.2%
6.3%
10.4%
10.2%
9.7%
2008
-32.5%
-24.9%
-19.8%
-15.2%
-4.5%
2009
41.2%
29.6%
9.4%
9.2%
8.7%
2010
-0.6%
0.8%
-0.4%
1.1%
3.9%
Total Return
30.3%
24.2%
23.4%
24.6%
33.2%
The SafeMoneyMetrics® Index is equal value of three un-leveraged advisors. POINT: The index is significantly understated! The Traditional Index is equal value of the S&P 500, Russell 2000 Growth, NASDAQ, DJIA and Lehman LONG Term Bond Index.
The chart below represents a $1000 VAMI for three indexes described above. Nothing was reallocated. Look at the movement of return patterns, from January 2003 through August 2010. One can easily see how independent each index is from the other. Managed futures travel to the sound of their own drum. Even if futures do nothing, or show losses for a specific time frame, they correlate with a total portfolio that reduces risk of the composite strategy under unknown market conditions.
Give us any investment to work with and the reallocation to managed futures will never fail to reduce the composite portfolio risk! Marlee-Jo Jacobson 212-777-3862 mj@safemoneymetrics.com
The free Mini Course for Investors offers an impeccable model for a conservative reallocation of assets.
http://research.safemoneymetrics.com/mini.html
The Mini Course for Advisors, at the same link teaches people to think without fear. The process of reducing fear, allows you to provide economic stability and growth under any market condition or circumstance.
The Mini Course for Business Development teaches broker-dealers and related industry participants to use managed futures, SafeMoneyMetrics® and private label limited risk partnerships to build the financial, individual and spiritual integrity of their clients and respective marketplaces.
Can a managed futures investment be used without integrating a traditional strategy?
YES. Surgery can also be performed without anesthesia. Seriously, managed futures alone work well for millions of investors. I’ve spoken with people that would never get involved with stocks again because of their positive experience with managed futures. Growth of hedge funds and managed futures supports the statement.
However, when built in isolation, any managed futures investment is speculative. Speculation increases risk, while prudent asset allocation reduces it.
WHY? All managed futures and option contracts are established only for a fundamental purpose of hedging, or reducing risk of the related cash market. An optimized hedge strategy first defines cash market risk then uses the futures or option contracts to offset that risk. Both sides of the equation are evaluated to determine how successful the strategy is. To optimize prudent allocation and degree of risk necessary to achieve a goal, we believe all your investments should be considered in a similar light!
A Short True Story
Before most of you people were born, there was a potato futures contract. (Onions too, but that was before I was born!) Anyway farmers could only get financing to plant a crop if they used the futures markets to hedge. More important to understand is that the banks always financed the hedge positions! I’m sure the same risk management strategy exists in other markets today!
I currently have an advisor and only want your services for managed futures. What do you perceive as prudent?
Tell your advisor what you want. Bring their attention to this article, SafeMoneyMetrics ® and the education offered. Let your advisor work with you and us on your behalf. If your advisor is informed with fact, the entire allocation process is enhanced. If informed with inaccurate beliefs about managed futures their opinion may be to your detriment.
If advisors are against managed futures, consider researching facts for yourself and proceed in another direction. There is a traditional financial library at http://research.safemoneymetrics.com Library. Information on managed futures offered by the CME Group is good and relatively objective. http://www.cmegroup.com (The link and other links are available through http://research.safemoneymetrics.com Library – Financial.
When your traditional research is relatively complete integrate what SafeMoneyMetrics® offiers. Read ‘Standards for Advisor Evaluation’. The guide offers a simple yet meticulous process for selecting managed futures investments. The analytical process is founded on hedging principles successfully used for over 150 years. The guide is complimentary.
What can convince me your strategy is superior to what I currently have?
We only reveal the difference between ‘belief,’ ‘truth’ and risks associated with building any investment strategy on ‘beliefs’ that have no relevance to ‘truth’.
Once the difference between belief and truth is understood, you can prudently analyze your current investments, relative to your objectives over variable time frames. We can then build a model integrating managed futures.
The difference between what is and what can be, supported with facts is enough to reveal answers you need. The most important advice I can offer is what my Father lived by. “Anything I lose sleep over is not worth getting involved with!”
Remember: Nothing is superior under all market conditions. What we do claim is that any involvement with managed futures is far superior with SafeMoneyMetrics® risk management. The combination of managed futures and SafeMoneyMetrics® always has less risk than anything tradition alone can offer.
Prove it to Yourself:
Read
“#43 How to Select SafeMoney Advisors,” and
“#44 First Cause Risk Management and Managed Futures,”
located at:
http://research.safemoneymetrics.com/articles_all.html
What would you do if the market collapsed, went up or was just volatile?
When well designed, the sensitive managed futures investment will adapt itself to changing market conditions. It should perform in bull, bear and sideways markets. In its' purest form, strategies are direct, liquid and offer a unique time value use of capital. Managed futures easily hold their place of dignity among the spectrum of investments.
Stock, bond, mutual funds, hedge funds and other investments are more indirect and illiquid relative to any managed futures strategy. The leverage used for traditional investments create profitability movements that are contrary to the potential of managed futures. A composite investment that integrates managed futures, index options, inter-bank and other more liquid strategies at varying degrees of leverage will dance performance rings around any strategy that does not include them.
The direct nature of managed futures built across market sectors is a perfect correlation to any other combination of investments, including hedge funds.
Again it’s all in market movements and leveraged used.
The foundation of Modern Portfolio Theory (MPT) is to correlate investments where the total return has less risk that of its components. It’s important to remember that MPT was originated for applications to risk free investments offering stable returns. When MPT is applied to managed futures we correlate actual returns rather than the movement of markets being traded.
How can you help if I only want managed futures?
We do not have the skills of a superior traditional advisor. We can structure a superior stand alone managed futures investment, however we insist that it be evaluated within the context of your entire investment strategy. We also believe that advisors using managed futures as part of a composite portfolio, offer risk management opportunities that are unavailable elsewhere.
What is the maximum downside of your composite limited risk managed futures strategy?
We ask people to design their managed futures investment as if all capital were lost. The process always eliminates irrational fear. Expectations then spiral upward from fear into a stable positive belief. The simple process of evaluating our beliefs usually optimizes the success potential of any endeavor.
If the allocation to managed futures is 100% lost, risk in the traditional strategy has not changed. If we calculate potential returns with and without the allocation to futures over 1, 3, 5, 8 and 10 years we can define an appropriate balance.
A question we teach people to ask is:
How long would it take to rebuild my total portfolio to its original value without incurring any more risk, if the allocation to managed futures were lost?
Can managed futures be used for my retirement, trust or corporate accounts?
My Father had a pension account for Jacobson Commodities Inc. The only investments it made were T-Bills and futures. Our family did quite well. Because of the upside potential and limited risk structure, managed futures are especially beneficial for retirement accounts because there are no tax consequences.
All questions related to allocations, age relative to time and risk are probably answered in the Mini Course for Investors.
http://research.safemoneymetrics.com/mini.html
How often do you change or rebalance the allocation?
Managed Futures are re balanced according to a pre-planned strategy. Time is not the exclusive consideration. Individual advisor performance and growth within a multi-advisor strategy is also important. We believe that profit distribution and the 51% rule are the most prudent risk management strategies available. The strategy is detailed in the Standards for Advisor Evaluation investment guide.
On the downside, if advisors violate their ‘internal benchmark’ by specific percentages and have to be replaced, just deal with it. The entire portfolio can monitored daily.
Internal Benchmarks are also defined in http://research.safemoneymetrics.com/guides.html
Standards for Advisor Evaluation.
How do I get started?
Order the Mini Course for Investors. Ask your advisor to read that and the Mini Course for Advisors.
http://research.safemoneymetrics.com/mini.html List all questions and coordinate all investment activity with your traditional advisor. They will contact us.