As is the case with any type of investment, due diligence is a must when selecting managed futures programs. It is important to take time to understand the manager’s trading strategy, and to be comfortable with the program’s risk characteristics, including position holding patterns and margin-to-equity ratios. All CTAs that are registered with the National Futures Association (NFA) are obligated to publish their performance records and calculate returns in compliance with the standards set forth by the Commodity Futures Trading Commission (CFTC) and the NFA. Be sure to know whether you are looking at hypothetical returns or actual performance. Managers have to clearly label performance as hypothetical. Solid CTAs will be happy to discuss their program and trading style, so consider contacting the managers on your shortlist.
Once you have performed the appropriate due diligence on the programs you are most interested in, take some time to honestly assess your own investment needs. It is crucial to match your own investment goals carefully with the right program, all the while keeping in mind the amount of risk you are taking on.
Without knowing what you are trying to achieve, you will not be able to align your own interests with the CTA best able to meet your investment needs.
A final piece of advice: Read the CTA’s disclosure document! It should be supplied to you as part of the account opening process, but you also can request it from the manager ahead of time. If you read the disclosure document from cover to cover, most of the key questions will be answered for you.
Matthew Bradbard, Vice President of Managed Futures & Alternatives at RCM Asset Management, has been creating and executing trading strategies for more than 10 years. Mr. Bradbard regularly publishes market commentary and trading ideas. Bradbard can be reached at firstname.lastname@example.org.