I have never seen a worse piece of financial journalism than the Bloomberg Magazine story, How Investors Lose 89 percent of Gains From Future Funds. Starting with the title, the story went downhill as the writers just ripped into the managed futures industry with their perception of fee gauging. Through selective analysis, they tried to show there is a major problem in this alternative investment area. It could have worked except there was a slight problem. The facts.
Clearly, the fees on the funds mentioned are high. The authors took the highest fees in the industry and extrapolated. This is not a problem with managed futures but with the wirehouses that structured these expensive deals. There is a difference between the managers and the packaging but the authors fail to make this distinction. It is not in the best interest of clients to buy this expensive product, but that is not the fault of the manager or the industry but the brokerage firm that offered the product. though it was mentioned, the fund highlighted has been closed to new investors since the end of 2008. Warning to clients, do watch the vehicle used to buy investments, but that is not the same as avoiding the investment.
The authors also do not seem to understand that investments go through cycles, so that looking at expenses when there is poorer performance will of course make the costs look to be higher. If the same analysis was done at the end of 2008, managed futures would look like a champion. Also the author looked at total expense over ten years versus profits which again is not an effect means of analysis. Time weighting is very relevant.
The authors did not seem to account for the current set of regulations. In fact, the CFTC commissioner cited in the story does not seem to know his own regulatory framework. Futures investments through CTA's or CPO's have to report drawdowns and provide break-even table for investments. They also have to report all expenses including brokerage. Try and get this information from a stock or bond fund.
So what was the purpose of this story. Did it solve a problem? Did it show a need for change? we are just left with the feeling that one area for regulation is journalism.
The authors also do not seem to understand that investments go through cycles, so that looking at expenses when there is poorer performance will of course make the costs look to be higher. If the same analysis was done at the end of 2008, managed futures would look like a champion. Also the author looked at total expense over ten years versus profits which again is not an effect means of analysis. Time weighting is very relevant.
The authors did not seem to account for the current set of regulations. In fact, the CFTC commissioner cited in the story does not seem to know his own regulatory framework. Futures investments through CTA's or CPO's have to report drawdowns and provide break-even table for investments. They also have to report all expenses including brokerage. Try and get this information from a stock or bond fund.
So what was the purpose of this story. Did it solve a problem? Did it show a need for change? we are just left with the feeling that one area for regulation is journalism.
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