Mr. Steben: I'd like to talk about managed futures as an investment class, and about our company and what we do, as opposed to specifically focusing on one of the funds we offer. We are not able to make what may appear to be a solicitation of interest in a particular fund, due to regulatory restrictions. Anyone wanting full information on our publicly offered fund can contact us and we are happy to send out a copy of the offering kit, which includes all the details. Let's talk about our specialty, managed futures, which are an amazing, unique and valuable diversification tool for investment portfolios.
TWST: First, please tell us about your firm.
Mr. Steben: Steben & Company is a manager of managers and we create and operate
managed futures funds. We research and monitor futures trading advisers, and
allocate our investors' money to be traded by those advisers. We have 20 years
of experience doing this.
Managed futures, as the name implies, are funds where investors' money is pooled
together and a professional manager or managers are hired to trade for that fund
in exchange-traded futures as well as currency forwards. These funds have
monthly liquidity, daily valuation and transparency. We don't invest our funds
into other funds, but rather our funds are managed directly.
The managed futures investment category is unique, because we have just as much
potential to profit from a declining market as from a rising market. We are not
a bull market bet like most traditional investments; we are able to either buy
or sell a wide variety of different items, including global currency markets,
global interest rates, global stock indices, agricultural commodities, precious
and industrial metals and energy fuels like oil and heating oil, natural gas and
things like that. So it's a very broad range of some 140 different contracts
that we could trade around the world, and our advisers trade these in a
systematic, computer-driven way. Our trading advisers use systematic trading
models that attempt to take advantage of directional price trends, either up or
down. We tend to profit when more of the markets we are using are trending
either up or down, and our down months occur when more markets are reversing or
are in range-bound patterns.
The way that we do this has a lot of risk control built into it. Our trading
advisers are only risking a small percentage of the total portfolio on any
single contract. They are constantly adjusting the positions based on what the
market is doing. Our trading advisers are very disciplined about following the
rules of their systems. Their trading models follow a rules-based model that
will adjust the risk based on what's going on in the marketplace. The managed
futures investment class is largely trend-following in nature, and it has a long
history of profitability. Very importantly, the returns from this investment
class historically had virtually no long-term correlation to other investment
categories, including stocks, bonds, REITS and hedge funds.
Managed futures funds are really quite a unique animal. Historically, the
managed futures indices have done quite well in bear market periods for stocks.
If you look at the S&P 500 and look at every period of time since 1980 that the
S&P 500 has declined by 20% or more, the managed futures indices have been
profitable. You can look at the CASAM CISDM, Commodity Trading Advisor Index, or
the Fund/Pool Index or the Barclay CTA Index and see very similar data. There
have been many white papers done on this topic, all pointing to the same
results. We are happy to direct those who are interested to where they can find
these research papers.
What all this means is that history shows that adding an investment in managed
futures funds to a portfolio can potentially lower your overall portfolio risk
and increase your overall long-term rates of return. Of course, as with all
growth investments, past performance is not indicative of future results and
where there is potential for profit there is risk of loss. With so much data on
the managed futures industry - going back to the beginning of 1980 and in some
cases longer - managed futures is not an experiment.
The trading advisers we use trade the world's futures markets using about 18
global futures exchanges. We don't invest in other funds, but rather we hire
some of the world's best futures trading advisers to manage the trading in our
funds. We watch what they are doing closely and can change the manager if, in
our opinion, a better manager would be a better choice.
We do extensive quantitative and qualitative due diligence before we ever
allocate to a trading adviser. We don't allocate to new emerging advisers. We
use experienced managers only. We allocate our investors' money to those
managers and then carefully monitor what they are doing. We do not give the
money to the managers. We do not invest in other funds. We hold the assets in
our funds and we give the trading adviser or manager a power of attorney to
trade that account. We closely monitor the trading every day, so we have 100%
transparency. We are able to terminate the power of attorney and close out the
positions, should we deem it to be in the best interests of the fund. We can
change the trading adviser we are allocating the money to.
What an investor is buying in a managed futures fund is manager skill, since it
is an ongoing trading program. In this investment category the selection of the
trading adviser is all important. It's very important to use a manager of
managers like Steben & Company because we know which trading advisers to use.
Most people just don't know what to look for when they're analyzing a futures
trading adviser. Our experience shows us that simply looking at recent annual
profit numbers is not a good means of selecting a trading adviser. You need to
look much more comprehensively at the company and at the elements of their track
record in terms of how they've controlled risk in what they've been trading. By
carefully selecting the right mangers, you can do much better in terms of long-
term results.
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.