Dynasty Financial Group, LLC - Alternative Investment Professionals, Managed Futures Specialists

Alternative Investments:

What are Alternative Investments?
Alternative investments are those investments that do not involve stocks and bonds. They are an alternative to the volatility of the market and an opportunity to have a greater return. They do not have a connection to the markets and the investor does not have as much risk.

One method of alternative investment is called Venture Capital. Venture Capital is the process of investing in a company that is just starting out and is seen as having the potential to grow substantially over time. The goal is to generate high rates of return over long periods of time. It offers investors better financial returns than stocks, but requires longer period of time to see any return at all. This is because the new company needs time to build up its clientele and thus its profits.

You can also invest in real estate, which is another form of alternative investment. You can do this by buying homes and selling them at a higher price. This works particularly well if you can buy a house for a rock bottom price, do some alterations and sell it at a tidy profit for your self. Again, this does not happen overnight. You have to carefully search the market when buying and selling to be sure you are getting the best deals. This may mean having to wait for the right opportunity to sell.

These characteristics tend to attract some of the most talented money managers, and some of the savviest investors, to alternative investments.

Alternative investments, such as hedge funds and managed futures generally are distinguished from traditional investments by their regulatory structure, high minimum investment requirements, incentive-fee compensation and the diversity of financial instruments and strategies they employ in pursuit of profit.

The poor recent performance of traditional asset classes has prompted many investors-including high net worth individuals, corporations, endowments, trusts and institutions such as General Motors and Princeton University-to turn to alternative investment strategies to balance their investment portfolios and attempt to increase returns in a variety of market conditions.

Why, during a period of such uncertainty, are so many investors increasing their commitments to alternative investments?

They are seeking strategies that will improve the overall return on their portfolios without exposing them to undue risk.

They know that: Unlike traditional investments, alternative investments' performance is not dependent on a bull market environment. In fact, some alternative investment strategies have historically produced strong gains during down market environments.

Note: Stocks offer greater liquidity and transparency than alternative investment products noted and may be less costly to purchase.

While past performance is not necessarily indicative of future results, an allocation to alternative investments, such as hedge funds and managed futures, may greatly affect a portfolio 's overall ability to preserve capital and grow wealth.

"They [hedge funds] can provide much-needed diversification and reduce risk by investing in niche areas such as private equity, commodities, and risk arbitrage or, most important, by shorting stocks-something that typical mutual fund, by law are restricted from doing."*

Marcia Vickers, with Debra Sparks and Heather Timmons "Hedge Funds Are Hot Again," Business Week Online, 26 February 2001

The law requires that managers determine investors' suitability before showing them specific products. Back to top ^

Managed Futures:

What are Managed Futures?
The term-managed futures describe an industry made up of professional money managers known as commodity trading advisors (CTAs). These commodity-trading advisors manage client assets on a discretionary basis using global futures markets as an investment medium. Commodity trading advisors take positions based on expected profit potential. Investment management professionals have been using managed futures for more than 20 years. More recently, institutional investors such as corporate and public pension funds, endowments and trusts, and banks have made managed futures part of a well-diversified portfolio. The growing use of managed futures by these investors can be attributed to the increased institutional use of the futures markets for risk-management programs. Additionally, investors want greater diversity in their portfolios. They seek to increase portfolio exposure to international investments and non-financial sectors, an objective that is easily accomplished through the use of global futures markets.

Managed futures, by their very nature, are a diversified investment opportunity. Commodity trading advisors have the ability to trade in over 50 different markets worldwide. Many funds further diversify by using several trading advisors with different trading approaches.

The benefits of managed futures within a well-balanced portfolio include:

1. Opportunity to balance portfolio volatility risk.
This balancing of the portfolio is possible because of the low to slightly negative correlation of managed futures with equities and bonds. (One of the key tenets of Modern Portfolio Theory, as developed by the Nobel Prize economist Dr. Harry M. Markowitz, is that more efficient investment portfolios can be created by diversifying among asset categories with low to negative correlations)

2. Potential to enhance portfolio.
Adding managed futures to a traditional portfolio improves overall investment diversification. This is substantiated by an extensive bank of academic research, beginning with the landmark study of Dr. John Lintner of Harvard University, in which he wrote that "the combined portfolios of stocks (or stocks and bonds) after including judicious investments in leveraged managed futures accounts show substantially less risk at every possible level of expected return than portfolios of stocks (or stocks and bonds) alone."

3. Ability to profit in any economic environment.
Managed futures trading advisors can take advantage of price trends. They can buy futures positions in anticipation of a rising market or sell futures positions if they anticipate a falling market. For example, during periods of hyperinflation, hard commodities such as gold, silver, oil, grains, and livestock tend to do well, as do the major world currencies. During deflationary times, futures provide an opportunity to profit by selling into a declining market with the expectation of buying, or closing out the position, at a lower price. Commodity trading advisors can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets.

4. Opportunity to easily participate in global markets.
Managed futures accounts can participate in at least 50 different markets worldwide, including stock indexes, financial instruments, agricultural and tropical products, precious and nonferrous metals, currencies, and energy products. Commodity trading advisors thus have ample opportunity for profit potential and risk reduction among a broad array of non- correlated markets.

These four benefits show that suitable investors with a high degree of risk tolerance may want to consider professionally managed futures.

The Value of Professional Management

Professional Management brings to futures benefits similar to those experienced with mutual funds and investment advisors. These benefits include:
• Full-time dedication to markets
• A disciplined trading approach
• Money management techniques that seek to control losses and protect profits
• Strategies that attempt to balance risk and reward

Characteristics of Managed Futures
• Returns are usually independent of U.S. stock and bond market trends
• Offer opportunities to participate in virtually all sectors of the world economy
• Have the flexibility to profit as easily in rising markets as declining markets; the potential for loss is of course equal
• Unlike stocks, managed futures have the potential to perform as well in inflationary periods as they can in deflationary periods
• With a trend towards globalization of world economies, the viability of managed futures takes on even greater significance

Reasons for the Growth of Managed Futures

A number of factors have been responsible for the growth in managed futures trading:
• Sophisticated investors have sought more effective methods of diversification. A number of studies indicate a portfolio including managed futures may yield more stable returns over a period of time relative to portfolios including only stocks and bonds.
• The tremendous expansion of futures to encompass stock indexes, debt instruments, currencies, and options as well as conventional commodities has created new categories of profit opportunities. The global nature of today's futures markets also has expanded the scope of investment possibilities.
• Studies conducted by the Chicago Mercantile Exchange (CME) indicated that Managed futures accounts may be more profitable on the average than accounts that individuals trade on their own.

Characteristics of Managed Futures Investors

• They are changing with the times and have broadened their selection of investment alternatives to take advantage of global opportunities.
• They seek the expertise of professional money managers.
• They have recognized managed futures as a legitimate investment and are aware of its features and benefits, potential rewards, and inherent risks.
• They have chosen to invest in a managed futures program because of its ability to complement their overall investment goals.
• As independent thinkers, they make intelligent decisions based on facts and logic.
The benefits of diversification are indisputable. Diversification rules, and that is exactly what we have tried to communicate to investors. Diversification is essential for economic survival and prosperity! Particularly in today's volatile stock market environment, we believe an investor's greatest risk is not having a properly balanced, diversified portfolio. Professionally managed futures on its own merits can potentially provide investors highly attractive returns. However, the greatest value that managed futures have, in our opinion, is in their practically zero correlation with stocks. This makes managed futures an ideal selection in properly balancing and diversifying investment portfolios.

Does your portfolio primarily consist of stocks, bonds, mutual funds, and other correlated investments that generally move in the same direction? If so, we advise in the strongest of terms to diversify with futures now! With the research and evidence so strongly supporting the inclusion of futures in an investment portfolio, we believe the question is, not if your portfolio should include managed futures, but how much. A Dynasty Financial Group, Managed Futures Specialist can help you decide what is best for you based on your investment goals, affordability and suitability.

Modern portfolio theory is standard practice in the smart investor's portfolio. MPT places a non-correlated investment, a predefined percentage managed futures component, into a typical bond and equity portfolio. Risk is diversified away from the bond and equity positions into non-correlated managed futures positions. Higher portfolio returns with a reduction in risk is the end result. Back to top ^

Hedge funds lie at the active end of the investing spectrum as they seek positive absolute returns, regardless of the performance of an index or sector benchmark. Unlike mutual funds, which are "long-only" (make only buy-sell decisions), a hedge fund engages in more aggressive strategies and positions, such as short selling, trading in derivative instruments like options and using leverage (borrowing) to enhance the risk/reward profile of their bets.

This activeness of hedge funds explains their popularity in bear markets. In a bull market, hedge funds may not perform as well as mutual funds, but in a bear market - taken as a group or asset class - they should do better than mutual funds because they hold short positions and hedges. The absolute return goals of hedge funds vary, but a goal might be stated as something like "6 to 9% annualized return regardless of the market conditions".

Investors, however, need to understand that the hedge-fund promise of pursuing absolute returns means hedge funds are "liberated" with respect to registration, investment positions, liquidity and fee structure. First, hedge funds in general are not registered with the SEC. They have been able to avoid registration by limiting the number of investors and requiring that their investors be accredited, which means they meet an income or net worth standard. Furthermore, hedge funds are prohibited from soliciting or advertising to a general audience, a prohibition that lends to their mystique.

In hedge funds, liquidity is a key concern for investors. Liquidity provisions vary, but invested funds may be difficult to withdraw "at will". For example, many funds have a lock-out period, which is an initial period of time during which investors cannot remove their money.

Lastly, hedge funds are more expensive even though a portion of the fees are performance-based. Typically, they charge an annual fee equal to 1% of assets managed (sometimes up to 2%), plus they receive a share - usually 20% - of the investment gains. The managers of many funds, however, invest their own money along with the other investors of the fund and, as such, may be said to "eat their own cooking".

PLEASE NOTE THAT THERE IS AN INHERENT RISK OF LOSS ASSOCIATED WITH TRADING FUTURES AND OPTIONS CONTRACTS. PLEASE CAREFULLY CONSIDER YOUR FINANCIAL CONDITION BEFORE INVESTING IN FUTURES AND OPTIONS CONTRACTS. FUTURES TRADING IS NOT SUITABLE FOR ALL INVESTORS.