National Public Radio recently interviewed David Evans, the author of the Bloomberg Oct. 7 story, “How Investors Lose 89 Percent of Gains from Futures Funds.” The interview didn’t question any of the assertions in the story. Michael Dever, commodity trading advisor and contributor to the DanCollinsReport.com responded to the piece. Here is what Dever had to say.
I read through the article and it is correct in showing the excessive fees that are being charged to retail mutual fund investors in managed futures funds. But, as the article acknowledges early on, “BarclayHedge … reports a 29-fold gain through 2012 for managed futures overall since 1980 … (but) BarclayHedge doesn’t deduct billions of fees charged by funds.” This shows that the problem is not with managed futures, which have posted great returns, even (especially) during stock market meltdowns, but with the financial industry that wraps these otherwise useful products in a high fee wrapper in order to entice brokers to sell them to main street investors.
In other words, this isn’t a case of the managed futures industry being flawed. It isn’t even about managed futures. It’s about Wall Street ripping people off through their packaging of product.
Individual investors could invest directly with the managed futures traders (CTAs) that make up that performance quoted by BarclayHedge, but the vast majority are not even aware this opportunity exists. That is because the main stream financial press and most financial advisors themselves are either unaware, or haven’t taken the time to understand the opportunity. As a result, the financial industry creates fee-laden funds to reward them for “selling” these products to their clients.
This is not dissimilar to the environment that existed 50 years ago, when the majority of mutual funds were laden with heavy sales loads in order to entice financial advisors to sell them to their clients. This article is not simply an indictment of these high-cost products, but of the entire investment industry. It consistently fails to “do the right thing” by showing investors how to create truly diversified portfolios. Instead, as I point out throughout my book "Jackass Investing: Don't Do It. Profit From It.", people are taught to create “poor-folios” that expose them to unnecessary risks.
Managed futures provide a tremendous source of diversified returns for investors’ portfolios. But the financial industry needs to properly inform investors of this opportunity. This article is right in warning people of the excessive expenses heaped on these products by the mutual fund companies that package them to appeal to main street investors, but it fails to point out the opportunities that investors have to buy these investments at “wholesale,” where they stand to benefit from the long-term performance that was quoted in the article.