[quote=dude]

  I'm not claiming that your lying or any other absurd SPIN that your hyper defensiveness seems to manifest.

[/quote]

Dude, seriously I ask you to consider what sort of response you expect to get from anyone who values their word when you insinuate (you did far more than just insinuate) that they knowingly screw clients for the sake of trails, or any other sort of income.

I'm done with this part of our conversation.

[quote=dude]

I remember the fund family I was using......

I think I was using the Spectrum series funds maybe the "Select" or Global product MikeB.....check it out and let me know if they are still charging the 5% trail......and yes my clients account was down by around (not exact but very close) 30% in a little over a month or so. 

[/quote]

No, Dude there's no 5% trail, even on the Spectrum series which is a multiple manager (and thus more expected to be more expensive to run) series. The payout is 3% upfront and a 4% trail after 12 months OR 0 upfront and 4% trail immediately.

As far as the performance of the fund, you must be talking about 2000, since it only has had a double-digit down qtr (no monthly numbers easily available) three times in its existance and two of them were in 2000. No 30% down qtr, but for comparison, the NASDAQ 100 was down 34% in the 4th QTR of 2000 and down 36% for the year.

[quote=dude]

MikeB said:

BTW, I thought you might enjoy this line from the "glossy marketing material" you were harping about "Managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable only for the investment of the risk capital portion of an investor's portfolio."

Reply:

The difference is what they choose to put in fine print and what they choose to emphasize with 'glossy color graphics' MikeB.  I have kept it really simple for you.......I'm not criticizing the disclosure MikeB, I'm not criticizing Morgan Stanley (no caps this time), I'm not even criticizing Managed Futures all that much (just a little)....I am criticizing the fact that these products are oversold because of enormous trails and that the marketing of these products is a lot of hype and 'number massaging'*.  From some of the passionate criticisms I have seen you dish out to those who sell VA's for similar reasons (high commissions, obscure complicated product, overly generous representation of the benefit of the product).

That's it......I think it's obvious we disagree which is no suprise.

[/quote]

* Emphasis mine

Two things, as I've explained elsewhere.

1) You've distorted my past posts about common problems with VAs sales AND you've confused the very nature of VAs as an investment and not an asset class (mean that you don't have to own a VA to get exposure to the asset class), with managed futures which IS an asset class.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

2) You're simply off base about the section I put in red. You're free to have your own opinions, but not your own facts.

Managed futures results and comparisons don't come from the various firms playing with the numbers, they come from studies of the Barclay CTA index (from Thompson Financial) versus the NASDAQ and the S&P 500, the research of Scheeweis and Lintner and the studies of Markowitz and Sharpe (Nobel Prize winners).  I can't see how you can contest the fact that adding 10% MF to a portfolio lowers standard deviation (and they use a monthly chart, btw) any more than you can contest the fact that adding 10% stocks to a 100% bond portfolio lowers S.D. while increasing returns. It's the very same mechanism.

Even the "glossy color graphics" you complain about talk over and over again about how MFs are for the AGGRESSIVE part of a portfolio, show MFs well above and to the right of a 100% stock portfolio on the standard risk/return chart.

I don’t know if there’s much more to go over on this at this point. We can agree to disagree.

I never claimed that the actual performance #'s are massaged.....the volatility bars and 'averaged' annual volatility misrepresent the actual volatility I have experienced......as far as what they are reporting for monthly losses all I can say is that when $20,000 goes to $14,000 (rough #'s) I consider that a 30% loss and it happened in a little over a month and did not break even before I left Morgan.......I believe it was towards the beginning of 2004 (2nd qtr sounds about right) and these are not made up #'s.....as far as the trails they must have come down.  I am certain the trail was 5%.....I was using several funds so it's also possible that I have the wrong fund family (although I was using Spectrum at the time).  Anyway 4% trails are still pretty lush if you ask me.

I never indicated that the managed futures fund was a conservative investment to the client.....just that it was conservative for a Managed Futures fund.

Yes the brochures do make disclosures but I find that clients weigh the pictures far more than the fine print and the way the graphics are presented (the annual up and down years vs stocks which show correlations)  make managed futures look LESS volatile than stocks (even you should admit that the blue bars (Managed futures I think) are more often down less than stocks and up a little less than stocks) this is the crux of my issue......since the actual numbers from the funds I analyzed (more conservative funds supposedly) were far more volatile than stocks.....that is until you averaged out the volatility.  Yeah I know that they are using the managed futures index for the #'s, but still the volatility is averaged which smooths out the jagged edges a bit. 

Look MikeB I have no incentive to make this crap up.....the presented info is honest.  I don't know why the numbers you are seeing are not matching the numbers I'm quoting.

I’ll also concede that Managed Futures do appear to lower standard deviation over long periods of time (which is never something I debated)…It’s just that it’s the monthly statements that my clients seem to care most about and I have come to doubt some of the value of all these financial metrics that are used to quantify risk.  Markets are truly unpredictable and I think that risk is greatly underestimated by looking at it from a ‘standard deviation’ perspective…even Sharpe himself thinks that these metrics are misused by Wall Street.   Anyway theres my pov.

[quote=dude]I'll also concede that Managed Futures do appear to lower standard deviation over long periods of time (which is never something I debated).........It's just that it's the monthly statements that my clients seem to care most about and I have come to doubt some of the value of all these financial metrics that are used to quantify risk.  .[/quote]

Dude, we all have clients who fall back to caring about month-to-month variations in values, even though their investment horizon is much further out. That hand-holding is one of the things we're paid for. During that hand holding it might be a good idea to show them that chart from the glossy marketing piece that showed monthly S.D. waaaayyy out there on the right hand side of that risk/return chart and refocus them on the correct time horizon.

[quote=dude]

I never claimed that the actual performance #'s are massaged.....the volatility bars and 'averaged' annual volatility misrepresent the actual volatility I have experienced......

[/quote]

Fair enough, but remember they showed you monthly volatility on their chart, not annual. Secondly, you can't really be claiming that a past performance chart eliminates the possibility of larger month to month swings. It was 10% of the client's account, and the aggressive part of it at that. If the NASDAQ can and did have more volatile months and qtrs (and even years) than did that particular MF, it's hard to indict MFs as an asset class.

[quote=dude]

as far as what they are reporting for monthly losses all I can say is that when $20,000 goes to $14,000 (rough #'s) I consider that a 30% loss and it happened in a little over a month and did not break even before I left Morgan.......I believe it was towards the beginning of 2004 (2nd qtr sounds about right) and these are not made up .. [/quote]

Well, I know we're counting on your memory, and I wouldn't want to be judged for honesty on my memory of a qtr's performance of a MF from 2004, but 2nd Qtr was down 18.23%. It finished down 4.73% for the year.

[quote=dude]

#'s.....as far as the trails they must have come down.  I am certain the trail was 5%.....I was using several funds so it's also possible that I have the wrong fund family (although I was using Spectrum at the time).  Anyway 4% trails are still pretty lush if you ask me.

[/quote]

They may have come down, I don't know. What are they now at AGE? 4% for an alternative investment (immediate is sold without a front charge or at the 13th month with 3% up front) isn't out of bounds, IMHO, and the absolute perfrmance has been great.

[quote=dude]

I never indicated that the managed futures fund was a conservative investment to the client.....just that it was conservative for a Managed Futures fund.

[/quote]

Well, I assumed we're talking about spectrum select because none of the others had the downturn like you mentioned, but it's the most volatile on a monthly S.D. basis (6.5%, perhaps your experience helped shape that number that high) and the highest break-even number at 5.25%

[quote=dude]

Yes the brochures do make disclosures but I find that clients weigh the pictures far more than the fine print ....

[/quote]

It's your job to make sure they don't ignore "fine print" (the line about aggresive part of a portfolio" wasn't "fine print" and that language appears several times in the piece) and the "picture" showed monthly volatility to be much larger than the S&P 500.

[quote=dude]...and the way the graphics are presented (the annual up and down years vs stocks which show correlations)  make managed futures look LESS volatile than stocks (even you should admit that the blue bars (Managed futures I think) are more often down less than stocks and up a little less than stocks) this is the crux of my issue......

[/quote]

What were they supposed to do, no report the truth? From 1980 to 2002 stacks HAD more negative 12 month rolling periods than did the Barclay CTA. Compare that to, say, the NASDAQ and you'll see what I mean, even though the chart shows the S&P 500.

[quote=dude]

since the actual numbers from the funds I analyzed (more conservative funds supposedly) were far more volatile than stocks.....

[/quote]

Select was the most volatile of the series and as the chart showed, it had a higher month-to-month volatilty than a 100% S&P 500 portfolio and even more than a 100% EAFE portfolio. What the chart also showed was that month to month, a portfolio of 10% MF had a lower volatility, the same as is the case when 10% stocks are introduced to a 100% bond portfolio. That's an average, as you said, and clients should understand that. Average volatility doesn't mean even month is smooth and client's can be allowed to push that expectation, after the sale, on you, unless you sold it wouldout explaining that.

[quote=dude]

... but still the volatility is averaged which smooths out the jagged edges a bit. 

[/quote]

That's true of every asset class we try to measure, not just MFs. So long as clients understand this is the aggressive part of their portfolio, and they keep a reasonable time horizon (and month to month or qtr to qtr isn't reasonable) they're good to go.

[quote=dude]

Look MikeB I have no incentive to make this crap up.....the presented info is honest.  I don't know why the numbers you are seeing are not matching the numbers I'm quoting.

[/quote]

Well, you're dealing from memory and I'm not. That gives me a significant advantage, and it doesn't mean I think you're lying. 

Notice also that we're fixated on a single month or qtr of one fund (and in a series I don't use) and have missed the point of the great perfomance of the asset class as a whole.

Month to month and rolling year performance doesn't always tell the whole story since few people invest on the first of the month or year.......it's very possible and probable that my client invested on an brief upswing before the fall out in '04, that plus the commission hit could easily make up the 10% to 12% difference in our #'s.  When I was evaluating the Spectrum product (if this is the one I'm talking about, although the 5.25 breakeven is about 4% lower than I recall) at the time it was among the less volatile funds.                                                                   

[quote=dude] <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Month to month and rolling year performance doesn't always tell the whole story since few people invest on the first of the month or year.......

[/quote]

I guess there's no perfect measuring system. However, the monthly S.D., expressed all over the sales piece is useful.

[quote=dude]

it's very possible and probable that my client invested on an brief upswing before the fall out in '04, that plus the commission hit could easily make up the 10% to 12% difference in our #'s. 

[/quote]

Which day of the month they invested could make a great deal of difference in the performance they saw, especially when you’re talking about something with a monthly S.D. of 6%.  Again, our job it to explain that to clients, not make out like we’ve been deceived and that the entire asset class is based on false marketing and hype, since the very same observation could be made about any investment (the “what day you bought it” part).

 As far as commission, and I could be wrong here, but I believe the client buys at NAV and your upfront (if any) comes from the fund.

 [quote=dude]

 When I was evaluating the Spectrum product (if this is the one I'm talking about, although the 5.25 breakeven is about 4% lower than I recall) at the time it was among the less volatile funds.                                                                   

[/quote]

One of the things that’s proven itself to me to be beneficial about this exchange is that it’s caused me to go over some details and look at a particular product (spectrum series) that I’m not familiar with. For example, “break even point” is the total the fund must make minus interest income (usually figured at the T-Bill rate) earned. Thus the prospectus will say “The fund has to make thus to break even” and the figure I gave you is from a fact-sheet, which expresses what the fund needs to make after interest income to break even. The prospectus will say 8.25%, the fact sheet says 5.25%.

Some of the issues you’re taking up about fees could well have addressed, if trails did (and I don’t know if they have) dropped from the 5% you mentioned. I know the annual brokerage fee, which is an element in total fees (plus management fees to advisors and incentives) has been reduced to 6% annually.

yeah I DO remember the brokerage fee was at least 7%......so they probably lowered the payout when they dropped the fee. Makes sense considering the 9%+ (now 8.25%) breakeven figure I quoted. 

Maybe deceptive is too aggressive of a word to describe my opinion of Managed Futures..I think that the marketing literature is too optimistic about certain aspects of the managed futures product and that they are very hard to truly understand, and trust me I'm no ignoramus when it comes to derivatives investments.  I am a bit jaded that in a little over a month my client dropped 30% so that is probably coloring my perspective (although my post-mortem analysis gave me some other food for thought that makes me much more cautious about this product than previously)

Anyway good discussion (although a little too much mudflinging on both sides).  I'm glad we were able to pinpoint the fund and that it was beneficial for you.  It was helpful for me as well to read your experiences with the product. thnx