Dr. Druz Captures Commodities Crown
Reprinted from THE WALL STREET JOURNAL. THURSDAY, FEBRUARY 21, 1991 1991 Dow Jones ~ Company, Inc. All Rights Reserved
YOUR
MONEY
MATTERS
BY STANLEY W. AGRIST
Staff Reporter of THE WALL STREET JOURNAL
Read 'em and weep.
The 1990 performance figures for commodity funds and pools look great. Overall, these professionally managed futures-trading portfolios, chalked up returns of 18% to 20%, much better than most other investments.
"If you couldn't make money last year, you'll never make money," says David Druz, a practicing physician and commodity-trading adviser who managed last year's two top-performing public funds. Dr. Druz's funds were up almost 100%, pushing total assets at year end to $2.8 million.
Now here's the weep part: You can't get into many of those funds, including Dr. Druz's. They're closed to new investors be cause of Uncle Sam's rules.
The Securities and Exchange Commission and the Commodity Futures Trading Commission, along with state securities commissions, regulate offerings of commodity funds (open to the general investing public) and pools (sold privately to individual investors ).
Most public offerings are sold for 30 to 90 days before the funds start trading futures; after that, they are closed to additional investment. Such restraints don't apply to foreign investors, however, and more than 50 funds cater to them. Many of those funds have outstanding performance records; for example, four of the top 10 funds in 1990 are open only to offshore investors. Private offerings may enroll an unlimited number of "accredited" investors- people having a net worth of at least $1 million each or annual income in excess of $200,000-but no more than 35 less-rich, "unaccredited" investors. Many pools maintain waiting lists of people ready to take the place of a withdrawing unaccredited investor.
Historically, private pools have higher rates of return than do public funds. Morton Baratz, editor of Managed Account Reports, a newsletter that tracks managed money in the futures industry, says that's partly because pools are traded more aggressively.
Another reason funds generally lag be hind pools is that investors pay higher fees-about three percentage points more-to funds than to pools. Funds have higher fees partly to compensate brokers or underwriters for their selling efforts.
Joel Rentzler, a professor of finance at Baruch College at the City University New York and a longtime critic of commodity investments, says he doubts that pools really do better than funds, on average.
He notes that while Managed Account Reports tracks the performance of almost all public funds, MAR tracks a much smaller sample of pools, many of which don't supply data to the newsletter. Mr. Baratz says he thinks the 139 pools MAR tracks are representative.
Dr. Druz, a 37-year-old emergency room physician who lives in Hawaii and commutes monthly to practice medicine in Alaska, had the best-performing funds not only for 1990 but also for the three years through Dec.31, according to the newsletter. Both of Dr. Druz's funds are closed to new investors though he is exploring the possibility of opening a new fund.
The doctor says that when his trading system indicated that he buy energy contracts In July he believed it to be "both risky and dumb," but as a successful technician he followed his system's dictate.
Those trades resulted in some of the best profits for the year. His trend-following strategy of buying or selling futures when he believes a price trend has started up or down also paid off in the currencies in 1990, he adds.
The private offering with the second best performance in 1990 of all such offerings tracked by the newsletter is the : $9million Turtle Futures Fund, which had a return of 133%. Last year "was about as pleasant as it gets for traders," says Elizabeth Cheval, the commodity trading adviser behind the still-open offering.
Ms. Cheval, who has been trading the Turtle Fund for about 18 months, says the markets, for the most part, were orderly and trending. "I made money in five markets-Eurodollars, Treasury notes and bonds, gold and the yen-in both directions, that is, when prices rose and fell" she says.
CUNY's Mr. Rentzler cautions would-be investors that the research he and his colIeagues have done shows that there isn't any reliable relationship between a fund manager's performance in one year and his performance the next.
The newsletter's Mr. Baratz says he cannot fault that conclusion but points out that commodity trading advisers are like performers of several kinds-athletes, musicians, actors-in that, "futures money managers who perform well for a period of years tend to continue to do so during future years, despite an occasional bad year." Conversely, he says, money managers whose track records are mediocre or worse are likely to remain in that category, despite an occasional good year.
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