From the March 01, 2012 issue of Futures Magazine • Subscribe!

William Dunn: Legendary CTA building legacy to last


FM: Managed futures in general, trend following in particular, has proven itself as a valid asset class/ strategy but it is still not widely accepted in some circles. Why is this?

BD: Probably this is because managed futures is not understood well by the public. Absent education, it is difficult for investors to stick with a system through a drawdown, and so volatility is an impediment to those that chase returns, or who are greatly troubled during the drawdowns. Many people take cues from the mainstream media, which may encourage emotional decisions and often the mainstream media doesn't present managed futures. However, our industry should have done a better job educating the media and the public.

FM: What should the industry do to education the public?

BD: It might have something to do with some of the gatekeepers who don't understand managed futures and don't want to talk about it.

Marty Bergin: The big investment banks aren't at all interested in managed futures or how they work other than the fact that they can set up allocations to them as long as they are getting a percentage of fees on the other side. But I don't think that anybody in the industry understands how managed futures works other than our small subset.

FM: Is it a matter of educating the public so that they demand these products in retail formats?

BD: We can't force our product on anybody. They have to willingly want it and they have to be curious enough to look into what they don't know. The providers need to know what is available out there for their clients; they [have a] relatively narrow curiosity coefficient.

FM: You have marketed, developed service agreements and strategic partnerships with emerging CTAs. Talk about this and the strategy behind it.

BD: Over the years, we have been approached many times with those who have a system, or sometimes just an idea. Provided the system or idea has merit and is testable, we give it consideration. Often, these are people without the resources to adequately test their own system, or perhaps they are lacking in practical experience and knowledge and they seek to partner with DUNN. About a third of our payroll is devoted to research and development, and we are adept at analyzing and testing new systems. Most of the systems or ideas do not pan out and are never implemented, but some do, and when they do, we may include that system in a DUNN pool and offer it for managed accounts. Our strategy is to provide the best options for investors. So, when we find a system we believe in after rigorous review and testing, we make it available to our investors.

FM: Has the industry been too meek in asking only for a 10% allocation of an investor's portfolio?

MB: That is absolutely true. Dunn has always preached that 10% of a person's diversified portfolio should be in managed futures. The 10% is incumbent on the volatility of the program. If you look at a program with Winton's volatility it really should be more like 30 or 40% of the portfolio should be allocated to it. We should have been more aggressive than we are as far as preaching the portfolio allocation. Managed futures should not be a stand-alone investment for people…also long-only equity investments should not be a stand-alone strategy, which it has been for years and years and look at what its gotten people today.

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