Most American investors would be more willing to gamble family mortgage money on the Super Bowl point spread than take a fling in the commodity futures markets.
They`ve heard that as many as nine out of ten speculators who invest on their own will lose money. They`ve heard professionally managed futures accounts designed for individuals generally seek investments of $50,000 or more.
Such tales are true. But there is another alternative for the smaller investor: A futures fund. There are 92 funds with $400 million in assets. Set up as limited partnerships, they usually permit a $5,000 initial investment, $2,000 in the case of individual retirement accounts.
Though goals vary, all are based on trading in futures contracts, which are agreements to buy or sell a specified amount of a commodity or financial instrument at a set price on a future date. The funds pool investor money to invest in the complex world of stock index futures, interest rate futures, currencies, precious metals or a variety of more conventional commodities.
”These are for people investing for capital gains, definitely not the fixed-rate type of investor, and the commitment should generally be two or three years,” said Bertram Schuster, a managing director of Gerald Commodities Inc. and co-author of a book on managed futures accounts, ”The Insider`s Edge” (Probus Publishing, Chicago). ”While it isn`t like taking a flier by investing in a futures contract on your own, it most likely won`t do as well as a larger individually managed account either.”
The pitch is to balance other investments in a portfolio and offer a shot at a big return. But many futures funds have been unable to deliver either in 1985.
”Some investors may say they`re putting a certain amount of their money into futures to balance off their stocks and bonds, but I think most of them really do so because they`re hoping for a fancy return,” said Morton Baratz, editor of Managed Account Reports, Columbia, Md., which tracks the funds.
”Some have had excellent results in 1985, though the average after-commission gain for all the funds has been only 8.5 percent.”
The best-performing futures fund in 1985 has been Thomson Financial Futures Partners I, managed by Campbell & Co., Baltimore, with a 67 percent after-commission return. (Though that fund is closed to new investors, the firm has funds under management that are open.)
”Foreign currencies have done particularly well for us this year, though we also invested in interest rate futures on Ginnie Maes and Treasury bills and also stock indexes and Eurodollars,” said Chris Wanek, marketing director for Campbell & Co. ”Futures portfolios do best when there are solid sustained trends in markets and do worst in flat markets.”
Best performers among futures funds open to the general public, according to Managed Account Reports, are:
— Pacific International Futures, Security Pacific Financial Futures, Los Angeles, up 35 percent after commissions.
— Matterhorn Commodity Partners II, Shearson Lehman Brothers, New York, up 33 percent.
— Cornerstone Fund III, Dean Witter Reynolds, New York, up 30 percent.
— Commodity Growth Fund, Dunn & Hargitt, New York, up 23 percent.
Because active trading is necessary with futures funds, there are substantial and complex fees. Check out the reputation and track record of the firm you`re investing with and obtain a full explanation of the fees you`ll pay. Wanek of Campbell & Co., for example, estimates that such fees are
”usually more than those of a stock mutual fund, yet less than a real estate partnership.”
Many investors cash in their investment early because they`re disappointed that they aren`t seeing the eye-popping returns anticipated. Though there are more futures funds now than five years ago, the total amount of money invested is down. Schuster says a reasonable expectation for a futures fund should be 12 to 18 percent annually after commissions, and the goal in a much larger private managed account should be 25 to 30 percent.
