The Taylor Xplor Managed Futures Stategy Fund Ticker:(TMFIX), which is scheduled to launch today, marks the latest move by the asset management industry to tap into the growing demand for alternative investment strategies.
The fund represents the first retail-class product from Taylor Investment Advisors L.P., a firm with nearly $400 million under management and advisement, mostly with institutional clients.
The firm, which will operate as Taylor Alternative Mutual Funds, is stepping into an increasingly popular segment of the alternative investments universe — without much name recognition or history among retail-class investors.
Kevin McDonald, co-founder and chief executive of Taylor Investment Advisors and co-manager of the new fund, acknowledged that marketing to retail investors will be a new challenge, but he explained that the company has a long history in working with financial intermediaries.
“Our primary aim has always been to assist advisers in successfully incorporating alternative investment strategies into their portfolios to reduce correlations to traditional equity and fixed income investments, add diversification, with the goal of generating superior returns,” he said.
The mutual fund and the fledgling fund company were created, he added, “specifically for [financial advisers] in response to their need for new alternative investment tools that can offer these benefits in a daily liquidity, easily accessible mutual fund format.”
According to Morningstar Inc., there are now at least 35 managed futures mutual funds, two dozen of which were launched since the start of 2011.
Over that same time period total assets in the fund category have more than doubled to $9 billion.
By way of perspective, in 2007 there was just one registered mutual fund employing a managed futures strategy. Today, much of the appetite for the category, and something Taylor Investment Advisors hopes to tap into, boils down to the reputation of managed futures for being able to generate non-correlated returns.
Commodity trading advisers, which represent the underlying asset management engines behind most managed futures mutual funds, first drew attention after 2008 when the category emerged as a rare winner during the financial meltdown.
While 2008 saw the S&P 500 Index lose 37%, and with most other asset classes experiencing similarly correlated losses for the year, the Barclay CTA Index, as a measurement of managed futures performance, gained 15%.
The lone managed futures mutual fund in existence at the time, the Guggenheim Managed Futures Strategy Ticker:(RYMTX), gained 8.5% in 2008.
There is no denying the impact of managed futures as a portfolio diversifier.
This year, through the end of August, the managed futures category as tracked by Morningstar was down 7.8%, while the S&P was up 13.5%.
Last year the fund category lost 7.1%, while the S&P gained 2.1%.
“Today's investment portfolios demand investments that are uncorrelated to market, business and economic cycles, and that can perform in down markets,” said Barry Cronin, chief investment officer at Taylor Investment Advisors.
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