Inside the DDoc

In the managed futures space, you can’t get more than a handshake into a conversation with a manager without taking a look at their disclosure documents (if that far). These carefully crafted documents are written in eloquent legalese that can be a mess to wade through without the proper background or hand-holding, but in our opinion, understanding the terms therein is incredibly important.

A disclosure document, or DDoc, is a formal description of an investment strategy, detailing the terms and conditions of an investment, and signifies an agreement between the investor and the investment manager. This document is the cornerstone of the individual managed account structure, with the document laying out just how the CTA will trade the account and the client agreeing and authorizing the CTA to trade the account via the signature pages of the DDoc.

What will you see in your average DDoc?

    • Program name and manager contact info
    • Disclaimers (lots of them)
    • Background of Company & Principals
    • Brief trading / strategy description (not all inclusive)
    • Risk factors to consider
    • Discussion on Notional Funding and how it affects performance and risk
    • Fee calculations
    • Potential Conflicts of Interest
    • Any Administrative, Civil, or Criminal Actions against the manager or recommended broker or FCM for the account.
    • Privacy Policy
    • Past Trading Performance

These documents can be a beast to dig through, with the average length, in our experience, about 20-30 pages. If you’re finding yourself needing to sift through one of these legal hulks, there are a few things you should pay close attention to:

Description of Trading Program – While most D-Docs use only the most basic of language and are loathe to give away the ‘secret sauce’, there are still basics you need to make sure of in the program description. Are they technical traders or discretionary? Do they trade options at all? If so, there’s another set of risk. What sort of risk per trade do they take on? Any sector limits? The list goes on and on, and the more you understand what they are doing, the more comfortable you will be with the program during any tough times ahead.  If you don’t understand what they are doing, how they are supposed to make money, and what environments are good for them from the D-Doc, find someone who does (and quick).

Fees-  What sort of fees are you paying for the manager’s service, how often will they be taken from the account, how are they accrued, and more are laid out. As are any tack on fees such as a liquidation fee, up front sales charge, give up fees, and more.

Performance- Whatever you have seen elsewhere regarding performance should be thrown out in favor of what you see in the D-Doc. This is the official performance they are linking with their program via the D-Doc, and the performance which will be audited should the NFA audit the CTA. One important thing we look for are any special notes to the performance. Are the results actual client trading or proprietary in nature?  Looking for risk adjusted rations like the Sharpe, MAR, and so on. You aren’t likely to find them in the D-Doc, where just the bare bones minimum requirement as far as data is provided. If you can’t some piece of data in the DDoc… well, there’s another reason to work with a broker.

Funding- What is the minimum investment level? And is notional funding allowed? Make sure you understand exactly what it’s going to take (and how much you’ll be risking) should you choose to invest in their program.

Conflicts of Interest- There are a myriad of ways a manager can find themselves in circumstances that compromise the integrity of a program. Trading proprietary funds and/or family funds alongside clients can emotionally charge decisions. There are also trade execution considerations to look at. Is there a strong connection to the executing broker? That may cloud their decisions. These conflicts may be listed, but not thoroughly explained… which brings us back to the broker advantage. They may be able to provide additional insight into these potential conflicts of interest, advising you on which ones are worthy of reflection.

Bottom line? DDocs are important. Read them. Read them thoroughly. And if you’re smart, get a broker to help you figure it out.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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