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Price Asset Management Brochure Rev-1-09.Indd PRICE Asset Management Alternative Investments Group MANAGED FUTURES Portfolio Diversifi cation Opportunities Table of Contents Benefi ts of Managed Futures Page 1 Introduction to the Firm Page 6 Managed Futures Specialists Page 7 Portfolio Construction Process Page 8 This brochure is neither an offering document nor a solicitation. Investing in managed futures is speculative, involves a high degree of risk, and is not suitable for all investors. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PRICE Asset Management Alternative Investments Group Introduction The Value of Diversifi cation The term managed futures describes an industry Today, a variety of academic research and evidence made up of professional money managers that demonstrates the potential benefi t of incorporating manage assets on behalf of their clients. Using managed futures to create better balance to a stock the global futures markets, they implement their and bond portfolio. systems to take positions based on expected profi t potential. Although futures investments involve substantial risk and are not suitable for everyone, the general conclusion Managed futures investments have been used by is that diversifi cation of non-correlated asset classes, individual investors for more than 25 years. More such as the introduction of managed futures to an recently, institutional investors such as pension investment portfolio, can both reduce portfolio risk funds, banks, endowments, trusts and family and enhance overall portfolio performance. offi ces have incorporated managed futures as one segment of a well-diversifi ed portfolio. Modern Portfolio Theory, introduced by Nobel Prize- Winning economist Harry Markowitz with his paper As a $225 billion asset class, managed futures are “Portfolio Selection” in the 1952 Journal of Finance, increasingly being recognized as an important showed how to measure the risk of various securities investment alternative that may potentially and how to combine them in a portfolio to get the enhance the returns and lower the overall volatility maximum return for a given risk. of a diversifi ed investment portfolio. Managed Futures - Portfolio Diversifi cation Opportunities Growth of Managed Futures* The concept of Modern Portfolio Theory was further (January, 1980 - September, 2008) advanced by the work of Harvard professor Dr. John Lintner in his 1983 study, “The Potential Role of ($ Billions) Managed Commodity-Financial Futures Accounts in 250 Portfolios of Stocks and Bonds”. 225 200 175 His conclusions stated, “...The combined portfolios of 150 125 stocks (or stocks and bonds) after including judicious 100 investments in appropriately selected sub-portfolios 75 of investments in managed futures accounts...show 50 25 substantially less risk at every possible level of expected 0 return than portfolios of stocks (or stocks and bonds) 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 alone”. *Source: BarclayHedge, LTD 1 PRICE Asset Management Alternative Investments Group The Concept of Non-Correlation Non-Correlation Correlation Analysis Although trading in futures may be highly (January, 1980 Through December, 2008) volatile and risky, adding managed futures as a component to a diversifi ed investment Managed U.S. U.S. portfolio may actually decrease volatility and Futures Stocks Bonds increase returns in a portfolio as a whole. Managed 1.00 -0.10 0.11 Futures The table to the right compares the correlations U.S. 1.00 0.22 between managed futures, domestic bonds and Stocks domestic stocks. U.S. 1.00 Bonds Market Direction Direction of Monthly Returns Another way to evaluate the relationship (January, 1980 Through December, 2008) between managed futures and stocks is to con- sider the frequency with which they move, or do 59 Months = 17% 167 Months = 48% not move, in the same direction. Over the period Both Down Opposite Directions from January, 1980 through December, 2008: • In nearly 50% of those months managed futures moved in an opposite direction from stocks. • In 35% of those months both managed futures and stocks posted positive returns. • In only 17% of those months did both managed futures and stocks move lower. 122 Months = 35% Both Up Data: Managed Futures - CASAM CISDM CTA Equal Weighted Index; U.S. Stocks - S&P 500 Index; U.S. Bonds - Barclays Aggregate Bond Index. 2 Investing in managed futures is speculative, involves a high degree of risk, and is not suitable for all investors. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PRICE Asset Management Alternative Investments Group The Value Of Diversifi cation The Ability to Profi t in Virtually Any Access to Global Markets Economic Environment The establishment of global futures exchanges In addition to improving overall portfolio allow managed futures trading advisors to returns, managed futures have the ability to diversify their trading systems by participating perform well in a variety of economic climates, in over 50 different markets worldwide. These including infl ation and periods of down stock include currencies, stock indices, fi nancials, markets. agricultural products, precious metals, and One reason for this is that managed futures energy products. trading advisors have the ability to take advantage of price trends in either direction. Thus, managed futures trading advisors have For example, during periods of infl ation, a variety of opportunities for profi t potential commodities such as gold, silver, oil, and and risk reduction through an array of non- grains tend to do well. correlated markets. Managed Futures vs. Stocks During Stock Market Drawdowns (January, 1980 Through December, 2008) The following chart shows the comparison between the performance of managed futures and stocks during the fi ve worst declines in U.S. Stocks. This chart demonstrates the historical non-correlation between these two asset classes for the stated period of time. 30% 20.60%28.12% 19.43% 20% 8.44% 10% 5.77% 0% -10% -20% -15.37% -14.68% -20.88% -30% -28.17% -29.70% -32.91% -40% -40.85% -42.07% -50% -44.74% -60% Managed Futures Stocks (S&P 500) Stocks (Nasdaq) -70% -72.13% -80% 10/07 - 12/08 8/00 - 9/02 6/98 - 8/98 5/90 - 10/90 8/87 - 11/87 Data: Managed Futures - CASAM CISDM CTA Equal Weighted Index; U.S. Stocks - S&P 500 & Nasdaq Indices. 3 Investing in managed futures is speculative, involves a high degree of risk, and is not suitable for all investors. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PRICE Asset Management Alternative Investments Group Balanced Performance The Effect of Diversifying a Traditional Portfolio into Managed Futures (January, 1980 Through December, 2008) Compounded Annual Returns 12.00% 40% Managed Futures | 20% Bonds | 40% Stocks 11.50% 11.00% 30% Managed Futures | 25% Bonds | 45% Stocks 10.50% 20% Managed Futures | 30% Bonds | 50% Stocks 10.00% 9.50% 10% Managed Futures | 35% Bonds | 55% Stocks 9.00% 8.50% Higher Returns Less Risk 0% Managed Futures | 40% Bonds | 60% Stocks 8.00% 8.50% 9.00% 9.50% 10.00% Annualized Standard Deviation Value of Initial $10,000 Portfolio with a 20% Allocation to Managed Futures vs. a Traditional Stock and Bond Portfolio (January, 1980 Through December, 2008) $200,000 20% Managed Futures 50% Stocks 30% Bonds $160,000 Value $161,006.40 Annual Std. Dev. 8.60% $120,000 $80,000 0% Managed Futures 60% Stocks 40% Bonds $40,000 Value $ 104,225.71 Annual Std. Dev. 9.91% $0 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 4 Data: Managed Futures - CASAM CISDM CTA Equal Weighted Index; U.S. Stocks - S&P 500 Index; U.S. Bonds - Barclays Aggregate Bond Index. Investing in managed futures is speculative, involves a high degree of risk, and is not suitable for all investors. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PRICE Asset Management Alternative Investments Group Evaluating a CTA Investors should be aware of the risks associated with investing in managed futures. When evaluating a CTA, a complete review of the disclosure document as well as an on-site Structure visit are necessary. The review process should be both qualitative and quantitative in nature Structure of Managed Futures and the key aspects to evaluate include: There are several types of industry participants in the managed futures sector. • CTA trading style • Commodity Trading Advisors (CTAs) are responsible for the actual trading decisions • Trading history and activity of a managed futures account. • Commodity Pool Operators (CPOs) • Performance assemble public funds or private pools, • Measure of risk-adjusted returns usually in the form of limited partnerships, and select the trading advisors. • Comprehensive due diligence questionnaire • Futures Commission Merchants (FCMs) are the brokerage fi rms that execute • Fee structures. and clear CTA-directed trades on various exchanges. There are two primary types of trading styles. Many traders will incorporate aspects of both. Managed futures advisors and investors benefi t • Technical traders: rely on designed systems from the structural effi ciencies of the futures and computer signals to guide in and out of markets. Liquid markets facilitate entering and trades. exiting market positions. Other key effi ciencies include: • Fundamental traders: rely on economics, • Use of leverage politics, and the principles of supply and demand. • Minimized transaction costs • Liquidity/rapid execution • Opportunity in rising, falling, or trendless markets • Value capture in the market. 5 Investing in managed futures is speculative, involves a high degree of risk, and is not suitable for all investors. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. PRICE Asset Management Alternative Investments Group Price Group Introduction The Price Group of Companies PAM’s objective is to uncover sound The Price Group of companies is a consortium opportunities for portfolio diversifi cation. of affi liates and divisions including Price Asset The fi rm utilizes extensive industry Management, Inc., and The Price Futures contacts, referrals and databases together Group.
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