Bear Markets Aren't So Bearish for CTAs

Barry Potekin is VP of the Rutsen Meier Belmont (RMB) Group Managed Accounts Relations. He has been involved in a wide range of commodity research and trading activities since 1985. A very popular speaker and teacher, he makes the fine points of alternrnative asset investing quick and simple to understand.

You can follow him on Twitter @RMBGroupFutures.

For more on Barry Potekin, click here.

A friend of Harry Dent’s, Barry Potekin, plans to show attendees at this year’s Irrational Economic Summit his approach to playing the ups and downs of the commodities market. This is not an easy feat in the current economic winter season.

To give you a taste of what Barry will bring to the podium in October (and to help you get to know him and his company a little better), we reached out to him with some questions.

Here’s what he had to say…

TvdB: Due to Harry’s forecasts for high volatility over the next decade, explain how your fund takes advantage of volatility in commodities.

Barry Potekin: What we do at the RMB Group involves more than just a single fund. My division focuses on managed futures as an asset class. Managed futures are specifically designed to make money in both up- and down-markets. That means their performance is not dependent on the business cycle or the stock market.

We analyze specific money managers within the managed futures universe and present a select number of them — along with their audited track records and Disclosure Documents (similar to a prospectus) — to our clients.

Managed futures money managers are called Commodity Trading Advisors or “CTAs.” Our aim is to match the trading style of a manager, or set of managers, to the risk tolerance and portfolio diversification needs of each of our individual customers.

As for volatility, bring it on! We love it.

CTAs are professional traders. Good traders welcome volatility because it provides more opportunities. I believe this is one of the reasons why managed futures have tended to do well during periods of crisis.

Some of the best years for managed futures have occurred during bear markets, recessions and periods of global unrest.

See larger image

Unlike mutual funds or Exchange-Traded Funds, Commodity Trading Advisors can go long or short on any market they trade. This gives them incredible flexibility.

TvdB: Do commodities have higher volatility than stocks? We’ve never seen any major stock market go down like oil did when it dropped from $147 to $32 in just over four months in 2008.

Barry Potekin: Not always and not all the time… Stocks can be just as volatile.

Crude did fall 78% in 2008, but during the dot-com crash, the Nasdaq 100 fell even harder, tumbling from a high of 4,882 in March 2000 to a low of 797 in October 2002 — a drop of 84%. It may have taken a little longer but the results were the same.

The supposedly staid and solid S&P 500 fell 58% in eighteen months after Lehman failed not so long ago.

If you were long and not diversified into other asset classes you got killed. This is why portfolio diversification is so critical — especially through programs able to trade the short side of markets.

Fear is a far more powerful emotion than greed. That’s why down-moves are more violent.

At the moment, stocks keep making new highs, so investors aren’t afraid. Perhaps they should be. My friend Harry Dent sure thinks so.

TvdB: Commodities also have relatively low correlations with stocks, so it brings diversification to other long/short funds…?

Barry Potekin: This is probably the biggest argument for having professionally managed commodities as part of a well-diversified portfolio.

Managed futures as an asset class are not correlated to movements in stocks or bonds, making them a highly effective diversification tool. Hedge funds, university endowments and family offices have been using them this way since the late 1970s. Individual investors are just starting to catch on.

And unlike hedge funds that require huge capital commitments and lock-up periods, managed futures are extremely liquid. You can close out your investment and have funds either wired to you or placed with a different manager in as little as 24 hours.

It’s also important to remember that when you add managed futures to your portfolio, you’re not necessarily buying a market or a basket of commodities. What you’re buying instead is the skill of the CTA managing your money.

As I mentioned earlier, this is what my division at the Rutsen Meier Belmont (RMB) Group in Chicago does. We analyze and evaluate CTA money managers and try to fit our customers with the right one.

TvdB: Are there any books on managed futures that you would recommend?

Barry Potekin: The RMB Group has an easy-to-read booklet on managed futures called Opportunities Outside the Stock Market. If you are going to the Irrational Economic Summit, you can sign up to receive a free copy at the RMB Group Table. You can also email me Put “managed futures” in the subject line and include your name, mailing address and phone number and I’ll make sure you get a copy.

Thanks to Barry for his time!

Be sure to reserve your seat at the Irrational Economic Summit now, so you can listen to what Barry has to say, along with our other speakers. We have an incredibly talented group of experts lined up for you.


Disclaimer: Futures trading involves the substantial risk of loss and is not suitable for all investors.