Thursday, December 19, 2013

CFTC Opens Probe Into Fees Charged by Managed Futures Funds

Following up on October's "Advisors, Turn that Worthless Client Equity into Valuable Commission Income".
From Bloomberg:
The Commodity Futures Trading Commission is investigating the high fees charged to investors in the $337 billion managed futures market.

CFTC Commissioner Bart Chilton says the agency initiated the inquiry after Bloomberg Markets magazine reported in its November issue that 89 percent of the $11.51 billion profits of 63 managed futures funds was consumed by commissions, fees and expenses.

“Of all a regulator’s duties, first amongst those should be safeguarding consumers,” Chilton says. “That includes highlighting, and potentially banning, excessive fees that can gobble up profits.”

The CFTC probe comes as a U.S. Senate committee today sent a letter urging the agency to work with the Securities and Exchange Commission to study ways to provide clearer disclosure of high fees charged to retirement accounts invested in managed futures funds.

``As Chairman and member of the Special Committee on Aging, we take very seriously our responsibility to safeguard the investment security of older Americans,'' Chairman Bill Nelson, a Florida Democrat, and Elizabeth Warren, Democrat from Massachusetts, wrote to CFTC Chairman Gary Gensler.

Chilton, one of four CFTC commissioners, says regulators should require managed futures fund managers to be more transparent about the cumulative effect of fees on investors over time.

Fee Review
Fees, commissions and expenses in managed futures funds often cost customers a large majority -- or all -- of their gains, according to filings with the Securities and Exchange Commission. Some managed futures funds charge as much as 9 percent of assets annually.

“The problem is I don’t think investors understand this,” Chilton says. “We need to do something about that.”...MORE

How to Make Big Money in Small Markets: Commodities
Small that is compared to forex or treasuries.
There is no magic secret, just bet the multi-year trends and be right.
From October's "Commodity hedge funds face bleak future":

The thing I don't get about these whiny little commod (no 'e', yet) artists is the apparent failure to understand the words hedge or macro.
Dudes, you can go long or short. And do it in multiple, disparate commodities anywhere in the world.
Unless of course the folks who were proclaiming commodities an asset class were simply full of it and were nothing more than longside trend followers charging alpha sized 2-and-20 for what was actually leveraged beta....
PIMCO Is Getting Into the Managed Futures Business
Managed Futures: "Quant funds suffer dismal ‘QE’ losing streak"
AQR--"Demystifying Managed Futures" (Returns and Anomalies)
UPDATED--The Economist On How the Commodity Quants Lost It