(Bloomberg News) Altegris Managed Futures Strategy Fund, a mutual fund that allows less affluent clients to invest with some of the best-known hedge-fund commodities traders, has attracted $707 million since its start less than a year ago.
Investors in the fund lost 6 percent this year, and plummeting gold, silver and oil prices weren't the only reason. The losses also reflect fees of as much as 2 percent of assets paid to the underlying traders in addition to the fund's 2 percent management fee and 5.75 percent in upfront charges. If the fund had made a profit, as much as 35 percent of that would also have gone to the underlying managers.
Investors in U.S. mutual funds, by contrast, paid 0.8 percent in average fees last year, according to data from Morningstar.
"The fees are far higher than for less specialized strategies," said Nadia Papagiannis, an analyst with Chicago- based Morningstar Inc. "They're promising the performance of hedge-fund managers, but what we've seen with funds of funds is that the performance is mediocre."
Altegris Managed Futures and three similar products, the MutualHedge Frontier Legends Fund, Princeton Futures Strategy Fund and Grant Park Managed Futures Strategy Fund, have attracted $1.3 billion since the end of 2009, offering access to as many as 20 prominent hedge funds that buy and sell everything from grain to gold to dollars, for as little as $2,500 in initial investment. They also bring another feature of hedge funds: high fees.
Managed futures funds for retail investors have been around since the 1970s, using computer-driven trading models to buy futures contracts. They can bet on the advance or decline in securities including stocks, bonds, currencies and commodities. Some also invest in securities linked to specific events like changes in the weather or interest rates.
An investor in MutualHedge Legends fund, whose six underlying managers charge average fees of 0.64 percent of assets and 24.55 percent of any gain, would have to make 12 percent in the first year to break even given all the fees.
The fund, which also includes a 5.75 percent sales load and a 2 percent management fee, is up 0.7 percent this year, compared with 2 percent, including dividends, for the Standard & Poor's 500 Index. Since its inception on Dec. 31, 2009, the Denver-based fund has returned 6 percent, not including the sales-load fee, while the S&P 500 has jumped more than 17 percent.
The Princeton fund, which has lost 1.8 percent this year, charges 2.2 percent in annual operating expenses and a 5.75 percent sales load. The Grant Park fund, which is down 1.2 percent since Jan. 1, charges 1.95 percent in annual maintenance fees and a 5.75 percent sales charge. Neither fund discloses how much it pays its underlying managers.