A Special
Report By John Mauldin -
Managed Account Programs
If you
take a train west from Chicago and get off at the main Hinsdale station, you
can walk a few blocks and come to the home of one of my favorite commodity
traders. It is an older, well restored home, with a very comfortable look and
feel. When you get inside, he will take you upstairs to the large second floor
office where he and three associates quietly, almost cerebrally, work, managing
$170 million traded on 17 futures exchanges all
over the world.
There is
no trading room, no screaming traders and no
sense of the crisis of the moment that you often see in commodity
trading firms across the world. It has the look
and feel of a very different type of commodities trading
firm from what people typically expect. Yet their model has been quite
successful for both the trader and his clients. One of the programs managed by
this trader has averaged 20.38% annually since August of 1997 and is up 21.5%
for 2008 through the end of May. He has nine other programs, one that has
averaged an eye-popping 30% with far more volatility (as measured by standard
deviation and maximum drawdown), and other programs which average less,
depending on the clients needs.
$1,000
invested when this specific program began in 1997 would be worth almost $7700
today, compared with $1650 from investing in the S&P
500, but of course that assumes you would stay in either the program or
the stock market through large draw downs. Past results are not necessarily
indicative of future results. As you will see from the discussion below, there
is substantial risk associated with commodity trading, and there will be times
when the program will have substantial draw downs and volatility.
Basically,
this manager is a trend follower, and his trading systems are completely automated. His
"trading floor" consists of a network of computers connected with
futures exchanges all over the world. He and his associates spend their time
honing their trading systems, while account management, trading and every
aspect of the business is running on computers neatly stacked throughout the
room.
Investing
in a trend follower has both advantages and disadvantages to an investor. The
program is highly diversified, with long and short positions in a number of
varied futures markets, including basic commodities such as grains and meats, energy products, industrial and precious metals as well
as financial futures and currencies. The system
is mathematically driven, highly computerized, efficient and entrepreneurial -
just the characteristics to take advantage of our volatile times. The report is
designed to build your understanding of how investing with a trend follower
could position your investments to benefit from the volatility in today's
markets.
If you
would like to read the rest of this report about this very special manager, you
can click here https://www.altegris.com/clarke/register.aspx
and see the entire report (including important risk factors) and see his
performance. I think you will find it very interesting and a potential way to
diversify your investments in a very volatile commodities
market.
Your
loving volatility (in the right market) analyst,
PAST
RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE
THEREFORE YOU MAY HAVE A GAIN OR LOSS WHEN YOU LIQUIDATE THE INVESTMENT. PLEASE
NOTE (FOR FUNDS): PRIOR YEAR AND YEAR TO DATE PERFORMANCE NUMBERS ARE NOT
INDEPENDENTLY VERIFIED, AND SUBJECT TO CHANGE, UNTIL COMPLETION OF AN AUDIT.
THERE ARE SUBSTANTIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THIS PRODUCT. FOR
A SUMMARY, SEE PRODUCT SPECIFIC RISKS UNDER "RISKS" OR "RISKS
& CONFLICTS." READ THE OFFERING MATERIALS CAREFULLY AND CHECK WITH
YOUR OWN ADVISERS BEFORE DECIDING TO INVEST. PLEASE REFER TO "NOTES TO
PERFORMANCE" FOR ADDITIONAL INFORMATION.
Notes to
Performance:
The
performance information shown is a composite of the accounts traded under this
program and does not reflect the performance of any single account. The results
shown are net of all fees and expenses.
Performance
results of individual accounts may vary as a result of differing fees, account
size, the timing of the entry of orders and other factors.
The
performance information on this page is presented on a pro-forma basis in that
the percentage rate of return displayed is calculated using an annual
management fee of 1.8% and an incentive fee of 25%.
Brokerage
fees and all other charges are included in all calculations as actually charged.
Percentage
rates of return
are calculated using the Fully Funded Subset Method except for the following
periods: May 1999, April 2000, April 2002 and October 2002, where the
percentage rate of return is calculated using the "Nominal Account Size Basis"
method. Ongoing from
*The end
date shown represents the full range of performance data available for this
investment product. Note that one or more of the indices used to compare with
this investment product does not include performance numbers to the end date
indicated.
**The
presentations of Total Return, Annualized Return, Annualized Standard
Deviation, Correlation and Performance Comparison (with one or more indices),
and Sharpe Ratio are prepared using data provided
exclusively by independent managers and well-known, independent third-party
sources. Production of such presentations is greatly automated, without
subjective input by any person, through the use of manager data that is input
directly into precise, pre-determined and consistently applied formulae used to
compute each presentation.
Source:
Global
Magnum Managed Account Program: Clarke Capital Management Inc; S & P 500 Total Return Index: Standard & Poors
Inc; HFRI Fund Weighted Composite Index: Hedge Fund Research Inc
Index
Descriptions:
S & P
500 Total Return Index: This index is the total return version of S&P 500 index. The S&P 500 index is unmanaged
and is generally representative of certain portions of the
An
investor cannot invest directly in an index. Moreover, indices do not reflect
commissions or fees that may be charged to an investment product based on the
index, which may materially affect the performance data presented.
Risks
This brief
description cannot adequately describe all of the risks associated with an
investment with a commodity trading adviser (CTA). Before deciding to invest
you should carefully read the entire disclosure document and consult with your
own advisers.
General
Risks
There are
substantial risks and conflicts of interests associated with managed futures
and commodities accounts, and you should only invest risk capital. The success
of the investment is dependent upon the CTAs ability to identify profitable
investment opportunities and to successfully trade. The identification of
attractive trading opportunities is difficult, requires skill, and involves a
significant degree of uncertainty. Additionally, the manager has total trading
authority and the use of a single manager could mean a lack of diversification
and higher risk. Returns generated from the CTAs trading, if any, may not adequately
compensate you for the business and financial risks you assume. You can lose
all or a substantial amount of your investment. If using notional funding, you
may lose more than your initial cash investment. Past results are not
necessarily indicative of future results.
Benefit
plan investors, as well as other retirement account investors, are particularly
advised to read and seek further advice concerning an investment with a CTA,
specifically its investment strategy and diversification, taxation, volatility,
liquidity and overall prudence and suitability of the investment. A fiduciary
of a plan that is subject to ERISA (an 'ERISA Plan') should determine whether
such an investment is permitted under the governing ERISA Plan instruments and
is appropriate for the ERISA Plan in light of the ERISA Plan's overall investment policy and the composition and
diversification of its investment portfolio. If you are investing notional
funds, you may have a margin call you are unable to meet without an excess
contribution.
Speculative
Investments and Risk of Loss
THE RISK
OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE
CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR
FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE
ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING:
IF YOU
PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF
ALL TRANSACTION COSTS.
IF YOU
PURCHASE OR SELL A COMMODITY FUTURE OR SELL A
COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AND
ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN
YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED
UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS,
ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE
REQUESTED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT
A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT.
UNDER
CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE
A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A "LIMIT
MOVE."
THE
PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A "STOP-LOSS" OR "STOP-LIMIT" ORDER, WILL
NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET
CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS.
A
"SPREAD" POSITION MAY NOT BE LESS RISKY THAN A SIMPLE
"LONG" OR "SHORT" POSITION!
THE HIGH
DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK
AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS
WELL AS GAINS.
IN SOME
CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE
SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION
OR EXHAUSTION OF THEIR ASSETS. THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE
DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR. YOU SHOULD CAREFULLY STUDY
THOSE SECTIONS OF THE DISCLOSURE DOCUMENT PRIOR TOMAKING AN INVESTMENT
DECISION.
THIS BRIEF
STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. YOU SHOULD THEREFORE CAREFULLY STUDY
THE DISCLOSURE DOCUMENT AND COMMODITY TRADING BEFORE YOU TRADE, INCLUDING THE
DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT.
YOU SHOULD
ALSO BE AWARE THAT A COMMODITY TRADING ADVISOR MAY ENGAGE IN TRADING FOREIGN
FUTURES OR OPTIONS CONTRACTS.
TRANSACTIONS
ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED
TO A UNITED STATES MARKET MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT
OR DIMINISHED PROTECTION. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE
EFFECTED. BEFORE YOU TRADE YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR
PARTICULAR CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO
TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR LOCAL AND
OTHER RELEVANT JURISDICTIONS.
THIS
COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING FUNDS IN THE
TRADING ADVISOR'S NAME FROM A CLIENT FOR TRADING COMMODITY INTERESTS. YOU
Fees and
Expenses
Managed commodity
accounts may be subject to substantial charges for management and advisory
fees. It may be necessary for those accounts that are subject to these charges
to make substantial trading profits to avoid depletion of exhaustion of their
assets. The disclosure document contains a complete description of each fee to
be charged to your account by the CTA.
Liquidity
The CTA
may trade highly illiquid markets, or on foreign markets, and may not be able
to close or offset positions immediately upon request. You may have market exposure even after the CTA has a request for
closure or liquidation.
Conflicts
of Interest
Altegris acts as an
introducing broker for individually managed futures accounts and as such, will
receive a portion of the commodity brokerage commissions you pay in connection
with your futures trading or receive a portion of the interest income (if any)
earned on an account's assets. CTAs may also pay Altegris
a portion of the fees they receive from accounts introduced to them by Altegris. Fees vary among different managed futures
products and may be high. You are responsible for negotiating both brokerage
commission rates and the amount of interest income credited to your account, as
well as any management and performance fees you
pay to any CTA trading your account. Altegris will
pay Millennium Wave Securities a portion of these fees. See the additional
disclosure below.
As a
result, there exists a conflict between the interest of Altegris
and Millennium in maximizing the commissions and fees paid by you (in which
they will participate) and your interest in minimizing those commission and
fees.
Leveraged
Trading Activities and Volatility
The high
degree of leverage that is often obtainable in commodity trading can work
against you as well as for you. The use of leverage can lead to large losses as
well as gains. The funds allocated to individual CTA managed accounts may be
less than the amount of cash or other assets which should be deposited for the
account to be considered "fully-funded". This is the amount upon
which the CTA will determine the number of contracts traded in the account and
should be an amount sufficient to make it unlikely that any further cash
deposits would be required while participating in the CTA program.
You are
reminded that the amount of cash deposited in a CTA managed account is not the
maximum possible loss that the account may experience. To the extent that the
equity in an account is at any time less than the amount which the CTA has been
directed to trade, you should be aware of the following:
- Although the account's gains and
losses, fees and commissions measured in dollars will be the same, they
will be greater when expressed as a percentage of account equity
- The account may receive more frequent
and larger margin calls
- When the cash amount deposited in the
futures account is less than the trading level allocation, the difference
between the cash invested and the trading level allocation represents
leverage and magnifies the volatility of the cash rate of return. Historical
composite rates of return reported by a CTA
are calculated based on trading level allocation amounts and not cash
deposit amounts. CTA management fees are computed based on trading level
allocation amounts and, as a result, will be greater as a percentage of
cash deposited than the agreed rate. Leverage increases fees and
commissions as a percentage of cash invested but not the dollar amount of
those fees. For example, assuming a fixed trading level allocation of $1
million and a 2% per annum management fee, the per annum management fee
paid to the CTA will be $20,000 irrespective of the amount of cash
deposited in the account.
There are
substantial risks and conflicts of interests associated with managed futures
and commodities accounts, and you should only invest risk capital. The success
of an investment is dependent upon a CTA's ability to identify profitable
investment opportunities and to successfully trade. The identification of
attractive trading opportunities is difficult, requires skill, and involves a
significant degree of uncertainty. CTAs have total trading authority, and the
use of a single CTA could mean a lack of diversification and higher risk. The
high degree of leverage that is often obtainable in commodity trading can work
against you as well as for you. The use of leverage can lead to large losses as
well as gains. Returns generated from a CTA's trading, if any, may not
adequately compensate you for the business and financial risks you assume. You
can lose all or a substantial amount of your investment. If you use notional
funding, you may lose more than your initial cash investment. Managed futures
and commodities accounts may be subject to substantial charges for management
and advisory fees. It may be necessary for accounts that are subject to these
charges to make substantial trading profits in order to avoid depletion or
exhaustion of their assets. The disclosure document contains a complete
description of each fee to be charged to your account by a CTA. CTAs may trade
highly illiquid markets, or on foreign markets, and may not be able to close or
offset positions immediately upon request. You may have market exposure even
after the CTA has a request for closure or liquidation. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
Millennium
Wave Securities, LLC, a FINRA and NFA member, offers through partners with whom
it has marketing agreements (including Altegris Investments
in the USA) various alternative investments,
including hedge funds, futures funds and managed futures and commodities
accounts, that may operate in commodities markets and foreign markets, among
others. Millennium Wave Securities, LLC and/or its officers/partners may have a
financial interest in such alternative investments. In working with clients, Altegris acts in its capacity as an SEC-registered
Broker-Dealer and/or as a CFTC-registered Introducing Broker. Although Altegris may give advice that is incidental to its
brokerage services, it is not an Investment Adviser. When acting as an
Introducing Broker for individually managed accounts, Altegris
receives a portion of the commodity brokerage commissions you pay in connection
with your futures trading and/or a portion of the interest income (if any)
earned on an account's assets. CTAs may also pay Altegris
a portion of the fees they receive from accounts introduced to them by Altegris. Altegris will share
these fees with Millennium.
Important
Disclosures
CLARKE
CAPITAL MANAGEMENT'S MANAGED ACCOUNT PROGRAM (THE PROGRAM) IS SPECULATIVE AND
INVOLVES VARIOUS RISKS AND CONFLICTS OF INTEREST THAT ARE MORE FULLY DESCRIBED
IN THE DISCLOSURE DOCUMENT. THIS PRESENTATION IS INTENDED ONLY TO PROVIDE A
BRIEF OVERVIEW ABOUT THE PROGRAM AND SHOULD NOT BE RELIED ON IN DECIDING TO
INVEST. IT MUST BE PRECEDED OR ACCOMPANIED BY THE DISCLOSURE DOCUMENT. YOU
SHOULD CAREFULLY REVIEW THE DISCLOSURE DOCUMENT, INCLUDING THE DISCUSSION ABOUT
RISKS AND CONFLICTS OF INTEREST BEFORE DECIDING TO INVEST. THERE IS NO
GUARANTEE THAT THE PROGRAM WILL ACHIEVE ITS OBJECTIVES, GENERATE PROFITS OR
AVOID LOSSES.
