CTA Managed Funds for a Balanced Asset Allocation

You may be wondering what a CTA is; a CTA is a portfolio manager of derivative instruments such as foreign exchange, commodities, and futures. If you are familiar with traditional mutual funds or hedge funds, you know that they have equity and bond specialists who make investment decisions. These are also known as equity or fixed income products.

As a matter of course, each investment style has its own unique characteristics. For example, a traditional stock investor will only profit when the stock market is going up. For example, a traditional stock investor only makes money when the stock market is rising and loses money when it is falling or bearish. Wouldn't it be great if you could win no matter which direction the market goes? With the CTA fund, you can do exactly that. cta buys and sells randomly. We call this long and short. CTAs can make money no matter which way the price is going.

Equity funds are managed by equity portfolio managers, known as CFAs, and bond funds are managed by bond portfolio managers, also CFAs. In addition, there is a third type of portfolio manager that manages funds that invest in commodities such as currencies, carbon emissions, precious metals, and agricultural products. These portfolio managers are called CTAs, and they manage CTA funds (sometimes known as managed futures funds).

Let's take a look at why CTA funds have outperformed stock and bond funds: since September 2008, the subprime mortgage debacle caused by Wall Street has sent stock prices plummeting. If you had an equity mutual fund or your own equity portfolio, you would have lost money. In fact, since September 1, 2008, the Dow Jones Industrial Average has lost 20.36%. according to the Managed Futures CTA database, the average YTD ROR (rate of return) for CTA funds through June 2009 is +2.14%. That is a difference of 22.50%. These funds are definitely worth paying attention to.

The big advantage is that you can trade the underlying commodity products. Why buy a company involved in oil extraction when you can buy the oil itself? The reason why investing in stocks can be difficult is that many factors come into play. Management skills, economic pressures, competitive pressures, union demands, changes in consumer habits, and many other factors determine a company's profitability. cta funds do not have these problems. Investors who buy aluminum or high-grade copper on the New York Mercantile Exchange are affected only by supply and demand issues. Prices rise during periods of economic growth and fall during periods of recession. This means that while equity funds sit on the sidelines watching the market rebound, CTA funds can profit from a falling market.

It is also important to mention the use of leverage. Unlike equity funds, CTA funds use leverage. For example, a purchase of $100,000 Canadian dollars will only cost $350 for the CTA. So when the dollar rises from 91 cents to 92 cents, the fund earns a profit of US$1,000. This equates to a gain of 186%. It may be easier to understand this from another angle: buying 1,000 barrels of crude oil at $60 per barrel will cost a cash consumer $60,000; NYMEX charges a margin of $6,000. If crude oil rises to $65, the profit is $5,000, or 83%. Of course, the use of leverage is dangerous because losses can mount up quickly. If crude oil had fallen to $55 instead of rising, the loss would have been $5,000. Of course, CTA funds are not the only funds that use leverage. Many equity hedge funds use leverage on a daily basis and determine the percentage of their portfolio that is allocated to such funds based on their overall investment objective of a balanced asset mix.

There are various types of CTA funds. These include agricultural funds, energy funds, foreign exchange funds, index funds, bond funds, and greenhouse gas or global warming funds. However, when balancing your investment portfolio, do not overlook this important sector for proper and complete asset allocation.