MEMPHIS, Tenn. - In the first year of its passive approach to investing in managed futures, the $1.9 billion Federal Express Corp. pension fund earned double-digit returns and beat most active commodity managers.
The passive program earned 11.5% for the year ended Sept. 30, according to William Gurner, manager-trust investments.
The passive program, begun Oct. 1, 1993, is managed by Mount Lucas Group, Princeton, N.J.
It tracks the BARRA/MLM Index, which returned 12.3% for the same period. Mr. Gurner said a 50 basis-point management fee and 30 basis points in trading costs account for the discrepancy, or tracking error, between the fund's return and the index.
The index, developed by BARRA Inc., Berkeley, Calif., and Mount Lucas, tracks 25 markets including grains, livestock, currencies, metals and interest rates.
In comparison, the median active commodity trading adviser in the universe of Barclay Research Group Inc., Fairfield, Iowa, returned 0.17% in the same period., The total return on the Standard & Poor's 500 Stock Index was 10.09% for the 12 months.
Mr. Gurner declined to disclose how much Federal Express has in its passive program. The pension fund has $57 million, or 3% of its total assets, in all of its alternative investments, including managed futures.
On Jan. 1, the fund began an actively managed commodity investment program. The program returned 1% net of fees for the nine months ended Sept. 30.
Mr. Gurner declined to disclose how much the fund has in the active program, invested in a limited partnership and also managed by Mount Lucas.
For the same nine months, the Federal Express passive managed futures program beat its active program, returning 7.48%, net of fees.
By contrast, the median commodity trading adviser in the Barclay's universe returned -2.04% for the nine months. The S&P 500 had a total return of 1.34% in the period.
"We're happy with the program," Mr. Gurner said.
The passive strategy shows managed futures offer an inherent return, like the major asset classes, and isn't dependent upon active commodity trading advisers' skills, he added.
Among the advantages of the passive approach, he said, are low management fees and relative ease of monitoring.
Federal Express' passive program uses no leverage, while its active strategy does use leverage.
NEW YORK - Alliance Capital Management L.P. will introduce a mutual fund that combines the use of short selling, futures, options and leverage with investment in 25 large, high-quality stocks to take advantage of rising and declining markets.
Steven Reynolds, senior vice president, said derivatives and short selling are additional tools for the fund's managers to use in a more volatile investment market. Using those tools, the fund's managers will try to take advantage of unwarranted fluctuations in the prices of the large-capitalization stocks they follow.
The fund, the Alliance All-Market Advantage Fund, is still in registration with the Securities and Exchange Commission.
Barry B. Burr contributed to this column.
