I don't know if there's anything wrong with AQR's Managed Futures Fund (AQMIX), which is a mutual fund--I think--see the comment below. Mutual funds are regulated investment companies under the Investment Company Act of 1940 which afford significant protections to investors, which I don't think investors always appreciate.
There seems to be plenty
wrong with "Managed Futures funds" themselves (which are a kind of hedge fund, thus are not mutual funds, not subject to the 1940 act). As in, "can you believe this?"How Investors Lose 89% of Gains From Futures Funds
. The scariest thing about this article, as in "how was this possible," is the comment that
The prospectus pitching the Spectrum fund, issued in March 2003, said the firm would accept investments as low as $2,000 for individual retirement accounts.
I generally ignore stuff that is presented as an innovative new ETF or mutual fund that for the first time finally makes it possible for Joe Sixpack to invest in sophisticated strategies that were once the exclusive province of hedge funds etc. I understand that the idea behind a lot of AQR's offerings is that things that may be evil when someone is charging two and twenty may be much more interesting when someone is charging "only" 1.22%.
And I do wonder about something. AQMIX is a mutual fund, regulated by the Act of 1940, but--do I understand this correctly?--it's allowed to make investments in things that aren't.
I don't need to understand this because I'm not investing in the fund, but if I were I would want to be sure that I did understand exactly
what this means. It's my boldfacing, and I'm boldfacing both the "maybe not OK" and the "but maybe OK because" bits:
The Fund intends to make investments through the Subsidiary and may invest up to 25% of its total assets in the Subsidiary. Generally, the Subsidiary will invest primarily in commodity futures and swaps, but it may also invest in financial futures, option and swap contracts, fixed income securities, pooled investment vehicles, including those that are not registered pursuant to the 1940 Act, and other investments intended to serve as margin or collateral for the Subsidiary’s derivative positions. The Fund will invest in the Subsidiary in order to gain exposure to the commodities markets within the limitations of the federal tax laws, rules and regulations that apply to registered investment companies. Unlike the Fund, the Subsidiary may invest without limitation in commodity-linked derivative instruments, however, the Subsidiary will comply with the same 1940 Act asset coverage requirements with respect to its investments in commodity-linked derivatives that are applicable to the Fund’s transactions in derivatives. In addition, to the extent applicable to the investment activities of the Subsidiary, the Subsidiary will be subject to the same fundamental investment restrictions and will follow the same compliance policies and procedures as the Fund. Unlike the Fund, the Subsidiary will not seek to qualify as a regulated investment company under Subchapter M of the Code.
I have to say, too, that it sure looks to me as if mutual funds are increasingly finding tricky ways around the invent of the regulations that are supposed to put very strict limits on leverage in mutual funds.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.