| You might be wondering what a CTA is. A CTA is | | | | market investing becomes difficult, is the many |
| a Portfolio Manager for derivative products such | | | | different factors that come into play. There is the |
| as foreign exchange, commodities or futures. If | | | | ability of management, economic pressure, |
| you're familiar with traditional mutual funds or | | | | competitive pressure, union demands, changing |
| hedge funds, you'll know the investment decisions | | | | consumer habits and a host of other factors that |
| are made by a specialist in stocks or bonds. | | | | determine the profitability of a company. |
| These are also called equity and fixed income | | | | A CTA fund has none of these issues to contend |
| products. | | | | with. Investors who purchase Aluminum or High |
| An equity fund is managed by an equity Portfolio | | | | Grade Copper on the New York Mercantile |
| Manager known as a CFA and a bond fund is | | | | Exchange are affected only by issues of Supply |
| managed by a fixed income Portfolio Manager also | | | | And Demand. During economic periods of growth, |
| a CFA. Their exists a third type of Portfolio | | | | prices rise and during periods of recession, prices |
| Manager and that is one responsible for managing | | | | fall. So while your equity fund is sitting on the |
| a fund which is invested in products like currency, | | | | sidelines waiting for a market re-bound, the CTA |
| carbon emissions, precious metals, agriculture | | | | fund is profitably trading a falling market. |
| products and others. These Portfolio Managers | | | | I would be remiss if I did not discuss the use of |
| are known as CTAs and they manage CTA funds | | | | leverage. Unlike an equity fund, A CTA fund uses |
| sometimes known as a Managed Futures Fund. | | | | leverage. For example, to purchase $100,000 |
| Despite the obvious, each investment style has its | | | | Canadian Dollars cost only $350 to the CTA. So |
| own unique characteristics. For example, a | | | | when the dollar rises from 91 cents to 92 cents, |
| traditional equity investor only makes money | | | | the fund makes a profit of US$1,000. That |
| when the stock market is rising. They lose money | | | | equates to a 186 percent profit. If we look at this |
| during a falling or bear market. Wouldn't it be | | | | from another angle it might become clear. To |
| fantastic to win no matter which direction the | | | | purchase 1,000 barrels of crude oil at US$60 per |
| market went. Well that is exactly what happens in | | | | barrel would cost US$60,000 to the cash |
| a CTA fund. The CTA can buy or sell at random. | | | | consumer. The NYMEX charges a deposit, we call |
| We call this being "long" or "short". When long, | | | | this margin, of US$6,000. Should Crude Oil rise to |
| you're betting the market is going up and when | | | | $65 dollars, the profit is $5,000 or 83 percent |
| short, you're betting the market is falling. A CTA | | | | profit. |
| makes money no matter which direction prices | | | | Of course, the use of leverage can be dangerous |
| are headed. | | | | as losses can quickly escalate. Should Crude Oil |
| Now that you know the basics, lets look at why | | | | have fallen to $55 instead of rising, a loss of |
| CTA funds have out performed equity and bond | | | | $5,000 would have resulted. Of course, CTA |
| funds. Since September 2008 the wall street | | | | funds are not the only funds to utilize leverage. |
| induced sub-prime mortgage fiasco has caused | | | | Many equity hedge funds use leverage routinely |
| stock prices to plummet. If you held an equity | | | | and depending on your overall investment |
| mutual fund or a stock portfolio of your own, you | | | | objective a balanced asset mix will dictate the |
| will have lost money. In fact since Sept 1, 2008 | | | | percentage of your portfolio allocated to such a |
| the Dow Jones Industrial Average has lost 20.36 | | | | fund. |
| percent. According to the Managed Futures CTA | | | | There are many types of CTA funds to select |
| database, the average CTA Fund YTD ROR | | | | from. Agriculture funds, energy funds, foreign |
| (Rate of Return) to June 2009 is +2.14 percent. | | | | exchange funds, index funds, fixed income funds |
| That's a whopping difference of 22.50 percent. | | | | and greenhouse gas or global warming funds. |
| These funds are definitely worth looking at. | | | | Choose the one that's right for you, but when |
| A major advantage is the ability to trade the | | | | balancing your investment portfolio don't over look |
| underlying commodity product. Why buy a | | | | this important sector for proper and complete |
| company that's involved in oil extraction when you | | | | asset allocation. |
| can buy the oil itself. The reason why stock | | | | |