ARE THE TREND FOLLOWERS BACK?

In 2008 when traditional equity funds showed their worst returns in recent memory trend followers reigned supreme. The leveraged version of one high profile ‘black-box’ trend following Commodity Trading Advisor managed over 50% in 2008 while a more volatile member of this asset class managed a mere 21% gain for the year.

Since then there has been some faltering although if you had held on through the last 6 years you could be looking at rather handsome profits.

CTA funds, on a standalone basis, can disappoint but there is strong evidence of non-correlation to equities and many advocate them as a portfolio diversification tool, particularly if your outlook is to reduce overall volatility and improve predictability.

They typically display positive skew – that is, the upside capture when a CTA program captures a trend significantly outweighs the small losses while waiting for a trend to follow. The last few years have been a waiting game but I am fairly confident we are turning that corner.

It’s really a contradiction in terms to say there are Managed Futures/CTA/Trend Followers that have low volatility but some are certainly more volatile than others. If you can handle large drawdowns and hold on then evidence would appear to show that investing in the higher vol funds is worth it in the long run.

Taking the previous two examples over the period from 2009 to date as an example, the lower vol fund would have you just about break even whereas the more volatile version is double-digit to the positive.

Some would say that these funds are an essential diversification tool in an overall portfolio and do actually reduce volatility and my research would support this and even might go so far as to say that you could allocated less to a high vol fund than you might to a lower vol fund and achieve the same overall result.

So let’s take a look at one in particular, the IQS Futures Fund. The manager of this fund was for a while mixed in with similar managers in a ‘fund of funds” but broke away a few years ago and is now the sole manager.

The IQS Futures Fund was launched in November 2011 to offer investors the opportunity to achieve a high rate of return while keeping the level at risk within acceptable limits.

The assets of the Fund are traded by IQS Capital Management Limited utilizing the IQS Diversified Program. The Program trades a diversified portfolio of outright futures contracts, including interest rates, currencies, energy and both hard and soft commodities, using an objective approach, which employs a series of computer programs.

From its inception in October 1995 to date, the IQS Diversified Program has achieved returns comparable with those of the best performing traders in the managed futures sector.

I switched my own holding from the previous fund of funds to the IQS Futures Fund in November 2011 along with all my personal clients, bar one. If you had done the same, you would now (to end September 2014) be up some 130% than if you had remained in the former fund, which has fallen some 70% over the same period.

It’s not for the faint-hearted nor Widows & Orphans but as a long-term, forget about it play, you could do a lot worse.

Advertisements

Death Taxes – Do You Really Care?

I remember many years ago, there was a general consensus that Inheritance Tax in the UK might well be abolished. At the time, few people actually paid it but these days it is a huge earner for the British taxman. My little old granny died having made no provision and it made a huge dent in her legacy and certainly had my Father and Uncle tied up in correspondence with HMRC for a very long time.

Estate Tax or Inheritance Tax is a fact of life in many countries but at least in the UK and the US and you probably get to pass everything to your spouse or legal partner free of any taxes.

Don’t assume that just because you have lived overseas for decades, you are exempt. Many people think this tax doesn’t apply to them, but they are usually wrong. Can you afford to ignore it?

In the UK, Inheritance Tax is levied on worldwide assets of anyone the government deems domiciled in the UK and you can be non-resident for many, many years but still be considered UK domiciled.

If you are UK domiciled but you are married to a person who is not then you only get to pass on the current Nil Rate Band free of tax, the rest is taxed at 40%

I recently helped one client who has a potential tax bill on death of almost GBP1 million to reduce that by GBP130,000 immediately simply by re-arranging a small portion of his liquid assets into a structure that gives him full access to that money on a set of pre-arranged dates in the future. Over the next few years we can gradually work on reducing more and more of that bill and at very low cost.

If you have assets in the US such as a property, then you pay Federal Estate Tax at 40% on everything above USD60,000. State taxes often apply in addition to that.

If you buy an apartment New York, for example and you are not American then you might get a nasty surprise, or rather your wife will if you happen to die unexpectedly.

Take a development we are jointly offering in New York at the moment. These range from US$637,000 to US$2.4 million. Non resident alien holding such a property would be looking at Federal Estate Tax on death of USD230,800 on the lowest rice unit and almost US$1 million on the most expensive. In addition, New York State death duties are levied on graduated scale from 3.06% right up to 16%.