Tough times for futures funds

Andrew Leckey

May 13, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Get out the aspirin: Managed futures funds are suffering from a financial headache that doesn't seem to want to go away.

It's been a tedious, choppy year because there have been few distinct trends to benefit the trend followers who manage them. Performance is tied to trading in contracts to buy or sell an amount of a commodity or financial instrument at a set price on a future date.

The average public fund has declined around 12 percent in value this year. Last year also served up a meager performance. Early on, there were losses stemming from incorrect guesses on the movement of oil prices.

"Some of the futures funds are doing worse than they did last year, when the greatest successes went to those funds specializing in currencies and interest rates," observed Morton Baratz, editor of Managed Account Reports, which tracks more than 200 funds.

"At the same time, however, they have been growing rapidly, with more and more large institutions such as Eastman Kodak and Mobil starting to experiment with them as a hedge for their portfolios."

According to Baratz, money in public futures accounts of all types has mushroomed to $21 billion worldwide.

Smaller investors can play the futures game through funds featuring initial investments as low as $5,000, or $2,000 for individual retirement accounts.

Funds pool money to invest in stock index futures, interest rate futures, currencies, precious metals or a variety of conventional commodities. The pool usually liquidates if more than half the capital is lost.

To attract dollars from more sources, futures fund managers have become more conservative than they were five years ago and now hold a greater portion of money in cash, Baratz explained.

"Managed futures historically have a negative correlation to the stock and bond markets, so it's easy to see why they haven't done particularly well lately," said Bruno Giordano, president of Devon, Pa.-based Dorset Financial Service Corp., which includes Dorset Futures Corp. "However, the No. 1 reason to have futures in your portfolio is to balance out other investments, for it's historically demonstrated that a combined stock, bond and futures portfolio performs better than a stock and bond portfolio."

Should you decide to risk investing, keep only a small part of your overall portfolio in these funds in order to be on the safe side. Many require a front-end sales charge of 4 percent, although in some cases this is absorbed by the investment company. There are commissions of 5 percent to 6 percent a trade.

"I don't recommend that any more than 10 percent of your personal investment portfolio be in managed futures," Giordano said. "Make sure you have other items in place, such as a cash reserve, stocks, liquid investments and life insurance, before you consider it."

The top-performing U.S. managed futures funds over the past 12 months, according to Managed Account Reports, were:

* Cornerstone Fund IV, Demeter Management, New York, open limited partnership, portfolio emphasis on currencies, $6,300 minimum purchase ($2,000 for IRA), up 33.4 percent.

* Peavey Futures Fund III, Heinold Asset Management, Chicago, closed limited partnership, diversified portfolio, $5,400 minimum purchase, up 28.4 percent.

* Commodity Trend Timing Fund II, Lehman Brothers Capital Management, New York, closed limited partnership, diversified portfolio, $5,000 minimum purchase, up 19.1 percent.

* Commodity Venture Fund, Lehman Brothers Capital Management, New York, closed limited partnership, diversified portfolio, $5,000 minimum purchase, up 18.7 percent.

* Commodity Trend Timing Fund, Lehman Brothers Capital Management, New York, closed limited partnership, diversified portfolio, $3,000 minimum purchase, up 18.5 percent.

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