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Managed Futures fund/Hedge Index?
Old 10-25-2005, 11:53 AM   #1
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Managed Futures fund/Hedge Index?

Has anyone looked into the possibility of investing in a managed futures fund or less specifically, an index of Managed futures? I know most people are against anything but the cheapest when it comes to funds (by expense ratio), but there is an S&P Index based on Managed Futures and also another based on a Hedge funds which has returned quite a nice penny.


from Oct 6:
MTD QTD YTD 3-year 5-year
SPHG S&P Hedge Fund Idx 0.97% 2.29% 2.42% 20.73% 39.86%
SPHGMFI S&P Man. Fut. Idx 0.23% 3.60% (5.21%) 4.34% 74.07%

It would certainly be great if ETFs could get to market faster so we could invest in whatever index we like!



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Re: Managed Futures fund/Hedge Index?
Old 10-25-2005, 02:12 PM   #2
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Re: Managed Futures fund/Hedge Index?

The 5 year returns are somewhat impressive, but everything else is pretty average or below average (especially the 3 year returns).
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Re: Managed Futures fund/Hedge Index?
Old 10-25-2005, 02:18 PM   #3
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Re: Managed Futures fund/Hedge Index?

More importantly, we don't know anything about the volatility of the index (aside from the fact that they appear not to be investable).
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Re: Managed Futures fund/Hedge Index?
Old 10-25-2005, 03:47 PM   #4
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Re: Managed Futures fund/Hedge Index?

Apparently you can invest through Rydex, a fund called Sphinx in the Hedge Fund Index, but has same qualifiers as a hedge fund itself. (Minimum $1M net worth, income restrictions, etc)

Rydex SPhinX Fund Overview

Investment Strategy
The SPhinX Fund seeks investment returns that substantially correlate with the performance of the Standard & Poor’s Hedge Fund Index (S&P HFI). The S&P HFI is a benchmark that reflects the performance of a select group of hedge fund managers that pursue investment programs representing the range of major investment strategies employed by hedge funds. In this respect, the Fund is similar to a “fund of hedge funds” because through one investment, eligible investors can participate in the investment programs of multiple hedge fund strategies.

1.95% expense ratio

http://www.rydexfunds.com/campaigns/sphinxoverview.cfm


Still looking around for the Managed Futures though..
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Re: Managed Futures fund/Hedge Index?
Old 10-25-2005, 03:59 PM   #5
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Re: Managed Futures fund/Hedge Index?

A very interesting paper on Rydex about something they've named "EPT," Essential Portfolio Theory

Introducing the Next Generation of Investment Strategy
At Rydex, we believe opportunities exist in any market environment. That’s why we developed Essential Portfolio TheorySM (EPT)—a new framework for approaching asset allocation with institutional-like investment strategies.

Obviously its geared to sell their products, but it has some very interesting thoughts in it, such as event-based rebalancing, using leveraged funds to free up extra capital, etc.. A good quick read!

http://www.rydexfunds.com/website/bo...x=y&PageURL=53

White paper:
http://www.rydexfundsfp.com/pdf/Retail_EPT.pdf
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Re: Managed Futures fund/Hedge Index?
Old 10-26-2005, 09:02 AM   #6
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Re: Managed Futures fund/Hedge Index?

HI there,

Several problems here.

Hedge funds cover a broad range of investment approaches. In so doing, they smooth out the yearly returns. Investing in just managed futures - one strategy - would place one with poor diversification even if one owned manage managed futures focused hedge funds within an index.

Managed futures also have a habit of blowing up. Sometimes one buys into an operation that prices and sells futures to others and takes a cut. They make money on the cut. They use very substantial leverage in order to expand this sliver into a healthy 20% annualised return. They then charge commission, fees and take a 20-30% cut. This often leaves as little as 8-10% of the money left. They sometimes also levy a fee per futures contract which is not including in the e/r and creates true confusion as to what the e/r really is. You only need a couple of futures positions sold to go well for the buyer and the fund can get into trouble due to the excessive amount of leverage involved.

Hedge funds can be solid, safe investments. One needs to distinguish however between the different types of approaches, and which ones use leverage and which don't. The risk level involved in any investment differs completely. The news coverage invariably covers the leveraged funds that blow up: Long Term and so on. In the case of Long Term, traders who were their opposite party in transactions knew their positions, knew their level of leverage involved and so knew the fund was living on borrowed time. They simply waited out the ticking bomb, and then bought the pieces up for next to nothing. This sort of things has happened over and over in time, with many 80% leverage (or more) funds in the 1920s blowing up when the market collapsed. Again when REITs were using 70% leverage with floating-rate debt in the 70s when rates shot up, etc. One needs to learn from these experiences!

There are some extremely talented investors running hedge funds today. Far more talented than the mutual funds. However, for retail investors, an index comes with its own fees, and this comes after the hedge fund e/r and 20%+ profit take. Thus, in order to get out 8-10%, the funds need to consistently produce 15-20%. This is a tall order. On an index basis, highly unlikely.

Hope it helps.

Petey

Quote:
Originally Posted by Olav23
Has anyone looked into the possibility of investing in a managed futures fund or less specifically, an index of Managed futures? I know most people are against anything but the cheapest when it comes to funds (by expense ratio), but there is an S&P Index* based on Managed Futures and also another based on a Hedge funds which has returned quite a nice penny.

* * * * * * * * * * * * * * * * * * * * * * * * * * *
from Oct 6:
* * * * * * * * * * * * * * * * * * * * * MTD* * *QTD* * * * YTD* *3-year* * *5-year
SPHG* *S&P Hedge Fund* Idx* * 0.97%* 2.29%* *2.42%* *20.73%* *39.86%
SPHGMFI S&P Man. Fut.* Idx* * 0.23%* 3.60%* (5.21%)* 4.34%* *74.07%

It would certainly be great if ETFs could get to market faster so we could invest in whatever index we like!
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Re: Managed Futures fund/Hedge Index?
Old 10-26-2005, 10:27 AM   #7
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Re: Managed Futures fund/Hedge Index?

It definitely does..

Being that I am more index focused, I try to hedge out the specific trader methodologies by looking more solely into Indices. So, instead of putting all your eggs into LTCM, you would have 1/4 of an egg in LTCM, 1/4 of an egg in Refco, 1/4 of an egg in Bayou, etc... Hedge funds are definitely a risky game, and the commisions are of course outlandish. Some people argue that you get what you pay for, but I am not necessarily in that camp, especially buying bottom end fee ETF funds...

Just thought I'd pass this along as its yet one more way to diversify that probably has a very low correlation to the general market. I know lots of people here use PCRIX, REITS, Corporate bonds, so figured I'd pass along yet another way to diversify a bit...
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