Managed futures funds are among the hottest “alternative investments” available through a mutual fund chassis right now. The funds part out assets to Commodity Trading Advisors who speculate and trade in financial and commodity futures contracts. These CTAs rarely make long-term investments but instead employ high-turnover strategies in an attempt to out-trade their competition.
These managed futures mutual funds typically have grossly high expense rations – at times exceeding 5% of fund assets. That expense ratio also may not include performance-based fees, which can drive the total expenses much higher.
Sponsors of these funds, including the Grant Park Managed Futures Fund, have discovered that they can hide many expenses by using swap contracts with the CTAs instead of giving them fund assets directly. Doing so masks the CTA’s expenses, making the fund appear cheaper, but the swap agreement itself bears additional costs, making this structure actually MORE expensive to investors.
This is a complete embarrassment to our industry and fund sponsors should be taken to task for ignoring their fiduciary duties to investors.
The original article on this story from InvestmentNews can be found here: http://www.investmentnews.com/article/20121125/REG/311259997.