2194 Twain Avenue
Carlsbad, CA 92008
Tel: (760) 809-2700; Fax: (760) 931-6126
Email: info@schwabcapital.com

FEATURES AND BENEFITS

Managed futures have a unique ability to potentially profit in any economic environment.

Demonstrating to investors the ample opportunity for profit, regardless of the direction of equities, interest rates, currency markets or political environments – without higher levels of risk.

Why Managed Futures Should Be a Portion of Your Overall Portfolio

Managed Futures

  • Managed futures may potentially profit in any economic environment when other investments are performing poorly such as during poor economic times and "bear" markets.
  • Smooth portfolio ups and downs that most investors experience and potentially lower the volatility of your portfolio while increasing your return over time (with commensurate risk).
  • No Lock Up Period. Clients can remove funds with a 5 business day notice.
  • Complete Account Transparency
    • Clients generally receive daily statements detailing all account trading activity.
    • Client accounts are "marked to market" daily. Closing account values are updated daily.
  • Managed futures offer greater accessibility, transparency, liquidity and security than most hedge funds, fund of funds and commodity pools (CPO).
  • Focus on long-term capital appreciation with an emphasis on absolute returns.
  • Low correlation to traditional financial markets.
  • A preferred investment choice of high net worth individuals, bank trusts, corporations, pensions, endowments, trusts, foundations and other institutions.
  • Managed futures have delivered historically very strong returns over time making them an ideal tool for institutional and individual investors looking to increase returns and diversify risk.
  • Has unique tax advantages. 60-40 long term/short term capital gains. (See further description below)

Advantages of Managed Futures Compared to Hedge Funds and Fund of Funds

Advantages of Managed Futures

Greater Accessibility

Managed futures are more accessible to investors requiring lower capital commitments than many other alternative investments. Most alternative investments have very large commitments and are far less liquid than managed futures. Investors can open a managed futures account, add additional capital, and redeem capital at any time.

Most hedge funds and fund of funds accept money from new investors, and additional contributions, on a monthly basis. Redemptions my be quarterly, annually, or longer and may incur redemption fees.

Greater Transparency

Managed futures provide greater transparency than most other alternative investments. Full transparency means that investors see every trade made by a manager. The investor receives confirmations on each trade - ensuring 100% transparency. Investors in managed futures accounts will also have online access to their accounts.

Hedge funds and funds of funds often trade unique over-the-counter instruments that are not easily priced because they are traded in unregulated, non-public markets, and may report trading activity to investors on a daily or monthly basis. Thus, investors generally do not have transparency into the fund’s underlying holdings.

Greater Liquidity

Managed futures may have greater liquidity than hedge funds and fund of funds. Futures contracts are highly liquid and can usually be bought or sold in a matter of seconds. It is usually easy to offset a futures contract or currency position, providing investors prompt redemptions.

Hedge funds may have illiquid private equity investments and over-the-counter investments not easily priced or traded in unregulated, non-public markets.

Greater Security

Managed futures may provide investors greater security than hedge funds and fund of funds. Client funds are held in segregated accounts. CFTC Regulations prohibit Futures Commission Merchants (FCM) from commingling segregated funds, providing greater security for customer assets than commingled bank or brokerage accounts used by hedge funds and fund of funds. Further, investors are able to control their assets in a managed futures account. In a fund the general partner has full control of assets.

 

Tax Advantages

Advantages of Managed Futures Due to an agreement between the U. S. Treasury Department and Congress, all gains earned from futures trades are taxed as if they were made up of 60% long term capital gains and 40% short term capital gains. This means that 60% of the gains are considered long term capital gains and are subject to a maximum federal income tax of only 15%, compared to the short term capital gains which are subject to a top tax rate of 35%. The net after tax results for gains made in futures and options on futures trading can be significantly higher for those clients who are in the upper U.S. income tax brackets.

The 60-40 rule

Most investments that are awarded the monetary benefits associated with long term capital gains status (e.g., ordinary stocks) require that an investment be held for a certain period of time, often 12 months. Stocks must be held a considerable period of time to gain the coveted long-term capital gain rights.

Such is not the case for futures transactions. For example, in the case of an S&P E-Mini trade, there is no required holding period that your investment must meet in order for your profit or loss to qualify for long term capital gains status. You could actually hold an E-Mini position for one hour, or even for just a few seconds, and the futures trade would still qualify for this long term status.

The primary purpose of the commodity futures market is to simultaneously reduce the risk of both producers (e.g., wheat farmers) and end users (e.g., cereal companies). But the futures market cannot function if there is insufficient liquidity; and without speculators who are enticed to enter the market in the hope of producing trading profits, liquidity would be poor. Thus, the futures market is largely a risk-transference mechanism, in which risk is transferred from hedgers to speculators. The government recognizes the importance of providing liquidity to the various futures markets and for this reason gives an incentive to those who are willing to assume risk in the hope of achieving potentially great reward.

As a result, the U.S. government has decided that the profits and losses from futures trading are taxed as 60% long term and 40% short term capital gains. To have more than half of potential profits in the long-term column is a big advantage.

The capital gains advantages of stock index futures are very important. The potential tax savings are too large to be passed over, especially for those in the upper tax brackets, where the difference between ordinary income (short term capital gains) and long term capital gains is large. When compounded with the portfolio diversification benefits, the case for using a managed futures account as part of your overall investment plan becomes even stronger.

Advice expressed herein as to tax matters was neither written nor intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed on a taxpayer under the Internal Revenue Code. Each taxpayer should seek advice based on its particular circumstances from an independent tax advisor.

 

Fees

Fees

Our fees consist of two components: an annual management fee and a performance fee. Both fees are based on net (post commission) profit.

  • Management Fee: 2%
  • Performance Fee: 20%

For additional details on how fees are calculated and assessed, please refer to our disclosure document.

CTA's typically charge a management fee and an incentive fee. Commodity pools (CPO) and hedge funds, due to the significant legal, accounting, auditing, and other expenses incurred in their operations, generally have higher operating expenses and thus higher fees than managed futures accounts.

 

Although Schwab does charge a small management fee (as most advisor firms do), which helps us cover our operating expenses, we do not earn a performance fee unless we achieve a positive return in an investor’s account. Furthermore, in order to earn a performance fee, Schwab must realize a New Net High in a client’s account that exceeds the previous High Water Mark. In short, we have a fiduciary duty to provide the highest level of investment management services to each and every client. You may be confident that we will intensively use our best efforts to meet your investment goals.

 

Please read the Schwab Capital Advisor's Disclosure Document for a full explanation of fees. The Schwab Capital Advisor's Disclosure Document must be read in its entirety before considering an investment with Schwab.

The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results.