In Search of the Educated Investor

It’s not often we agree with managed futures critics, but this time around, we’re making an exception. A recent piece in the Wall Street Journal told the story of a man who passed on the managed futures mutual fund MutualHedge Frontier Legends Fund. We’re not a huge fan of the managed futures mutual fund in general; we prefer the liquidity, transparency and lack of load and sales fees you can get from managed accounts. But our admiration of Rick has nothing to do with the Legends fund itself. No, for us, it was the why:

Rick is a 50-something investor from New Orleans, whose financial adviser has been pushing him to move some of his assets into a “managed futures” fund, saying it will smooth out results.

The sales pitch he’s getting for the MutualHedge Frontier Legends Fund amounts to “Managed futures held up well during the last financial crisis,” and “This is what sophisticated investors do.”

While both of those points are technically correct, Rick’s not that sophisticated, which is why getting into MutualHedge Frontier Legends (US:MHFAX)  would be the Stupid Investment of the Week.

Stupid Investment of the Week highlights the concerns and characteristics that make a security less than ideal for average investors. It’s written in the hope that showcasing one worrisome situation will make it easier to sidestep danger elsewhere. The column is not intended as an automatic sell signal, and in fact the investors who have slugged more than $825 million into Frontier Legends since it opened at the end of 2009 might be pretty happy they’re in it.

My hope is that the bulk of those investors don’t fall into the “average” category, if only because they should be getting solid explanations from the advisers who sell MutualHedge Frontier Legends. Rick, by comparison, wasn’t getting those kinds of answers, and that alone would make it hard for him to get comfortable with any managed-futures fund.

Did you catch the important lesson in there? It has nothing to do with the Legends fund, or mutual funds, or managed futures performance. For us, the most important takeaway was this:

My hope is that the bulk of those investors don’t fall into the “average” category, if only because they should be getting solid explanations

Replace the word generic term “average” with “uninformed,” and this article makes a lot of sense.

If you’re looking at a managed futures investment, and the bulk of the pitch you’re getting is related to 2008, you should absolutely be running in the other direction. First of all, past performance is not necessarily indicative of future results. To base an investment off of one sliver of asset class performance is ill-advised no matter what the label is. Second, if you’re working with someone who favors generic explanations over taking the time explain one of the more complicated investments on the market (no matter what wrapper it’s in), they’re doing you a disservice. There’s a chance they can’t  explain the nuances because they don’t understand the investment themselves. This goes back to our newsletter about using caution when selecting financial professionals to work with.

No one should invest in managed futures without becoming educated on the asset class. It’s why we dedicate the time we do to our blog, newsletter and so on. An educated investor has more realistic expectations, and can make decisions that are better suited for their investment goals. And that’s the kind of investor we’d rather work with. After all, isn’t good decision-making the point?


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Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.