What Is a Multi-Advisor Fund?

The Commodity Trading Advisors (CTA) fund, also known as the Managed Futures fund, refers to a professional fund manager who uses the funds entrusted by the client to independently decide to invest in the global futures and options markets for profit A form of IMF that collects corresponding management fees.

Commodity Trading Advisory Fund

CTA funds, hedge funds (funds of funds) and investment funds (Funds of Funds) are equivalent to non-mainstream investment vehicles (Alternative Investment); pension funds, insurance funds, endowment funds, charitable funds and other non-mainstream investment vehicles show strong As a result, the scale of CTA has expanded dramatically. Correspondingly, the role and influence of CTA funds in the global futures and options market have gradually become apparent.

It should be noted that adding a hedge fund or CTA to the portfolio will increase the kurtosis and skewness of the return distribution of the portfolio, because the return distribution of hedge funds and CTA is very unstable (Fung and Hsieh, 1997) This is also the main disadvantage of the CTA fund!

First of all, in a legal sense, the supervision measures of CTA funds are more stringent. According to the US Commodity Exchange Act, the establishment of a CTA fund must be registered with the US Commodity Futures Trading Commission (CFTC) and approved only after certain conditions are met, such as 15 or 15 in the past 12 months The above clients have provided investment advice; they cannot conceal their CTA status from the public or investors; they must meet the requirements of the US Commodity Exchange Act for their identity or have other legal permission; investment advice provided Must be consistent with its own business, etc .; After the CTA fund is incorporated, it must also comply with the rules for risk disclosure and information disclosure, and keep corresponding historical transaction records. Other countries, such as Japan, also provide corresponding regulations and regulatory measures for CTA funds in their Commodity Investment Regulations. CTA funds are generally organized in a limited partnership.

Second, the difference between CTA funds and hedge funds' profitability in bull and bear markets. Schneeweis and Surgin (1998) studied the yield of different types of CTA funds, hedge funds, and mutual funds by establishing a multi-factor model and found that no matter which type of trading strategy CTA funds and hedge funds belong to, the stock market is in a bear or bull market At the same time, they were able to find unique profit opportunities, which is traditionally unmatched by mutual funds investing in the stock and bond markets. For the comparison of the profitability of CTA and hedge funds in bull or bear markets, different scholars have different views: Some scholars believe that the profitability of CTA and hedge funds is not different in bull and bear markets (Ackermann, McEnally, and Ravenseraft, 1999 ); Some scholars believe that CTA is more profitable than hedge funds when the market is down; in a bear market, the correlation between CTA funds and stocks is negative, and the related behavior of hedge funds and stocks is positive, so CTA can be better than hedge funds. Better protect investors' portfolios. In a bull market, CTA is less profitable than a hedge fund. At this time, the correlation between hedge funds and stocks is smaller than in a bear market (Edwards and Caglayan, 2001).

Third, the trend trading strategy CTA fund and the counter trend trading strategy CTA fund. At present, most CTA funds are trend traders (Gregrriou and zhu, 2005). However, in addition to different investment strategies for trend traders and counter-trend traders, their risk and return characteristics are also significantly different. Simon (2004) researched the benefit data of 549 CTA funds and found that the CTA funds of the trend trading strategy will increase their returns as the risk increases; while the CTA returns of the counter-trend strategy will not change significantly with the risk!

According to data disclosed by Barclays Group, as of January 1, 2006, there were 738 CTA funds and 4,414 hedge funds that were relatively active in the world futures market. The reason why CTA funds are increasingly favored by the market is their ability to diversify investment risks.

First, the CTA fund has the function of improving and optimizing the investment portfolio.

CTA funds, hedge funds, and other non-mainstream investment vehicles are different from mutual funds. This is because they can use dynamic trading strategies, derivatives trading, short or short selling, leveraged trading, etc. to expand their profits, so they should not be affected by market growth. The important performance of this characteristic is that the correlation between CTA funds or hedge funds and assets such as stocks and bonds is zero or even negative, which is very important for investors, because Markowitz's (1952) portfolio theory believes that Investors can reduce their portfolio risk by adding less relevant assets to their portfolio. John Linter (1983) in a seminal management futures fund research paper "Manage Futures-and the Future Role of Futures Accounts (Funds) in the Stock and Bond Portfolio" shows that CTA funds and stocks It has obvious irrelevance with the bond portfolio. Adding the management futures fund to the traditional asset portfolio makes the investment portfolio have a good income distribution and an excellent risk-reward ratio.

Second, the CTA fund has the function of preventing systemic risks in the stock market.

Especially when the stock market is in a bear market, investors can add non-mainstream investment tools such as CTA funds and hedge funds to their portfolios to not only protect their assets against risks, but also increase returns (Schneeweis and Spurgin, 1998). The "October stock market disaster" in the US stock market in 1987 caused many investors to show great concern about the ability of non-mainstream investment vehicles to diversify market risk; and the downturn in the US stock market since 2001 has made stocks and bonds more open The performance of heavy investment portfolios has become very bleak, so investors are increasingly willing to actually have to transfer more proportions of non-mainstream investment instruments into their portfolios. For example, some smart investors such as high net worth personal investments (High-net worth indliduals), companies, investment banks, and traditionally conservative pension funds, charitable funds, endowment funds, etc. have gradually reduced the proportion of hedge funds, management funds and other non-mainstream investment vehicles in their assets from 5 % Increased to the level of 10-15%.

Third, CTA funds can significantly reduce the risk of investment portfolios and increase the returns of investment portfolios.

According to a report by JP Morgan (1994), adding 15% or more CTA funds to traditional stock and bond portfolios can significantly reduce the risk of the portfolio and increase the return on the portfolio. In addition, a report from the Chicago Mercantile Exchange (CME) (1999) concluded that, on the premise of the same size and risk, the stock and bond portfolios containing 20% of managed futures funds are more expensive than those of portfolios without managed futures. 50% higher yield! The Chicago Board of Trade (CBOT) research report in 2003 concluded that a portfolio containing 45% of stocks, 35% of bonds, and 20% of CTA funds has the largest return of all portfolios and the lowest risk!

China's futures market is dominated by small and medium-sized retail investors, and there is a relative lack of institutional investors. This also restricts the price discovery and hedging function of our futures market to a certain extent. Therefore, actively and steadily developing our futures investment funds can not only optimize the investor structure of our futures market, but also promote the healthy development of our futures market.

On the other hand, as a non-mainstream investment tool, the ability of CTA funds to diversify market risks should be valued by investors who invest in stocks and bonds in the traditional sense.

In short, studying and learning from foreign CTA development experience is of great significance to the development of China's CTA and the prosperity of our futures market.