industry insight
By iFAST EDIT O R IA L T E A M
A Different Asset Class:
Managed Futures
Funds
Managed futures funds offered by Superfund
Financial (Singapore) Pte Ltd are a relatively
undiscovered asset class.
M
anaged futures are an asset class which is made up of professional money
which traces its origins back to managers who are also known as Com-
1948. The managed futures in- modity Trading Advisors or CTAs. The
dustry is made up of professional money money manager manages client assets on
managers who are also known as Com- a discretionary basis using global futures
modity Trading Advisors or CTAs, says markets as an investment medium.
Aaron Smith, Managing Director of Su- All Superfund products utilise pro-
perfund Financial Singapore. Superfund prietary, fully automated trading systems
has 19 offices around the world and has which trade in over 100 broadly diversified
been in Singapore since 2005. futures markets around the world. Instead
“In the past year, we have grown and of a fund manager, we have a R&D team
strengthened the team substantially and which programs mathematical formulas
will continue to do so in 2009. Singapore into our trading system and everything is
has great potential and through continu- done systematically, removing all human
ous education, we believe investors will emotions. Every trade we enter, there is
start to understand a new asset class they automatically a pre-calculated stop loss
were previously not exposed to,” says Aar- which is adjusted on a daily basis. If a
on. In Singapore, Superfund’s managed trade goes against us, we are stopped out
futures funds are only available to inves- immediately.
tors who meet certain net assets require-
ments (for individuals with net assets of iFAST: What are the differences and simi-
$2 million or income of $300,000 in the larities between managed future funds and
preceding 12 months and corporates with hedge funds?
net assets of $10 million). They are also AS: The only similarity would be both
available to institutional investors and any managed futures funds and hedge funds
person who invests more than $200,000 are classified as alternative investments.
per transaction. But the underlying investments are very
Aaron explains more about the features different. We trade only futures contracts
of managed futures in this interview: which are listed and liquid. We can trade
iFAST: Your expertise lies in managed future both long and short instead of one direc-
funds. How do they work? tional bias. Managed futures are also high-
Aaron Smith: Managed futures were ly regulated. From a correlation point of
started in 1948 by Richard Donchian, view, managed futures are not correlated
a year before hedge funds were created. to hedge funds so in effect they are two
Managed futures describe an industry very different asset classes.
44 |
February ~ July 2009
Article disclAimer: This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund’s prospectus. Any advice herein is made on a general basis
and does not take into account the specific investment objectives of the specific person or group of persons. As some of the authors/contributors may have a personal interest in some of the funds commented on, investors should seek the advice of professional advisers regarding
the evaluation of any product, unit trust or other financial instruments, report, index, opinion or any other content contained herein, to ensure the investment instrument is suitable for them. In the event that investors choose not to seek advice from a professional adviser, they
should consider whether the investment instrument is suitable for them. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed
herein are subject to change without notice. iFAST Financial and/or its licensed financial advisers representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the article, or any unit trusts or Singapore
Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds.

iFAST: What are the pros and cons of will ship it all over the country. The city if you look at any paper currency to-
managed futures funds? had few storage facilities, with little proce- day they are not pegged to any physi-
AS: The pros are you will get a very diversi- dures or grading, leaving the farmers of- cal asset. In the past 4000 years, gold
ten at the mercy of dealers. This is when has been the only currency and so was
fied asset class that is uncorrelated (that is,
the opening of a central place where the US dollar until 1971 when Nixon
it does not trade in tandem) with your usual
farmers and dealers could meet and deal took it off the gold peg. Since then
traditional investments like equities and
in “spot” grain, meaning exchange cash paper currency has lost much of its
bonds so in a bear market it acts as a port-
for immediate delivery. value. Due to the US economic crisis,
folio protection. It is also an asset class that
Hedgers use futures to protect them- the government will be forced to print
performs in the bull market. The con would
selves against adverse movements in their more money. This will erode the value
be the natural volatility of 20% if you look
underlying commodity. For example, a of the currency even more. Gold is the
at it as a stand alone asset class but having
food processing company which cans only currency that will hold its value
said that, compared to the recent volatility
corn. If corn prices go up, the com- and there is a limited supply of it. Man-
suffered in the equities market, managed
pany has to pay the farmer more. Thus aged futures funds that are valued in
futures were less volatile. So incorporating
to hedge against higher corn prices, the gold ounces like Superfund’s will pro-
managed futures into a portfolio, the low
company will buy corn futures to cover vide diversification instead of just hold-
correlation will blend out the volatility.
the amount of corn it expects to buy. ing physical gold.
iFAST: What are the correlation numbers On the other side of the trade, if corn
iFAST: The lack of transparency on hedge
between managed future funds and global prices go down, the farmer will not be
funds and how they are managed is a deter-
equities and global bonds? able to sell his corn at the price he would
rent to some investors. The recent Madoff
AS: I’ve actually studied the period from like. To hedge the farmer will sell corn fu-
case doesn’t do much good to the hedge fund
tures (short) to cover the amount of corn
January 1980 because that is the bull mar-
industry too. Do you think managed futures
he expects to sell. So you see it’s natural
ket and many have the misconception man-
funds will also be seen that way? If yes,
to go short as well as long in the futures
aged futures only do well during the bear
what are you doing to circumvent it?
market.
market but that’s not true. It does well both
AS: There are numerous operational,
in bull and bear markets, it’s just during the
iFAST: What are your views on the structural and regulatory differences be-
bull market nobody wants to look at any-
market? What asset classes and sectors are tween hedge funds and managed futures
thing else except stocks.
you most positive on this year and why? funds. First and foremost, managed fu-
AS: We do not have a view per se as we tures funds are and have been regulated
iFAST: What can investors and FAs expect use technical analysis. We believe all the around the world for many years and of-
from Superfund in the next few years? information is already reflected into the fer meaningful transparency. This is why
AS: Superfund is looking to grow our pres- price movements. However, we believe if education on what managed futures are
the US continues to print more dollars, and how they work is so important for
ence in Asia for the long run and we are
then gold is a safe haven because it holds investors to make informed investment
here to educate and offer an alternative in-
its purchasing value. decisions and not to view managed fu-
vestment solution to complement any port-
tures in the same light.
folio (subject to the investor’s risk profile).
iFAST: What is your preferred allocation
Managed futures are an asset class which
between the different asset classes? Why? iFAST: Has 2008 changed the way you
has previously been Wall Street’s best kept
AS: We do not have a preferred allocation invest?
secret as it was only available to the ultra
AS: Not at all – 2008 has been a great
like traditional fund managers. We look at
high net-worth individuals and institutions.
over 150 futures markets globally. When year for us. We have continued to
We are here to educate FAs and investors
there is a breakout in technical analysis, trade exactly how we have been doing
why it is an asset class every investment
we go either long or short. Traditionally, since the first Superfund product was
portfolio should have.
we are allocated to 50% in commodity launched in 1996. iFAST
iFAST: Managed futures funds can adopt futures and 50% in financial futures but
shorting strategies. Shorting is often seen as this is not fixed.
risky. Is this the case?
iFAST: You recently commented that gold
AS: This is a common misconception. If
may hit US$1,500 an ounce – will we see
you look at any markets, they go up and
this level this year? Why are you bullish? In iFAST INSIGHT’S DISCLAIMER: Please refer to the content and article
they also come down. We are shorting fu- disclaimers on Page 6. in addition, Please note that restricted
more practical terms, can you run us through
tures and not stocks (for stocks you need authorised / recognised schemes may only be offered to certain
how a managed futures fund takes advantage
to borrow). It is common in futures to go tyPes of investors and to accredited investors whose total net
of this view you have on gold prices? assets or annual income exceed certain amounts. this aPPlies to
short. Just a bit of history, futures trad- all restricted authorised / recognised schemes, including hedge
AS: There are a few reasons why we
ing started in 1840s Chicago when farm- funds (whether single hedge funds, hedge fund-of-funds or
are bullish on gold, but mainly because
ers came to sell their wheat and dealers caPital Protected/guaranteed hedge funds).
45
Important: See Disclaimer on Page 6 iFAST INSIGHT |
Article disclAimer: This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund’s prospectus. Any advice herein is made on a general basis
and does not take into account the specific investment objectives of the specific person or group of persons. As some of the authors/contributors may have a personal interest in some of the funds commented on, investors should seek the advice of professional advisers regarding
the evaluation of any product, unit trust or other financial instruments, report, index, opinion or any other content contained herein, to ensure the investment instrument is suitable for them. In the event that investors choose not to seek advice from a professional adviser, they
should consider whether the investment instrument is suitable for them. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed
herein are subject to change without notice. iFAST Financial and/or its licensed financial advisers representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the article, or any unit trusts or Singapore
Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds.