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CAMPBELL FUND TRUST - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

August 14, 2014


The Campbell Fund Trust (the "Trust") is a business trust organized on January 2, 1996 under the Delaware Business Trust Act, which was replaced by the Delaware Statutory Trust Act as of September 1, 2002. The Trust is a successor to the Campbell Fund Limited Partnership (formerly known as the Commodity Trend Fund) which began trading operations in January 1972. The Trust currently trades in the U.S. and international futures and forward markets under the sole direction of Campbell & Company, Inc., the managing operator of the Trust. Specifically, the Trust trades in a diverse array of global assets, including global interest rates, stock indices, currencies and commodities. The Trust is an actively managed account with speculative trading profits as its objective.

Effective August 31, 2008, the Trust began offering Series A, Series B, and Series W Units. The units in the Trust prior to that date became Series B Units. Series B Units are only available for additional investment by existing holders of Series B Units.

As of June 30, 2014, the aggregate capitalization of the Trust was $580,637,259 with Series A, Series B and Series W comprising $387,380,215, $140,090,071 and $53,166,973, respectively, of the total. The Net Asset Value per Unit was $2,493.30 for Series A, $2,603.21 for Series B, and $2,673.15 for Series W.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from those estimates. The Trust's significant accounting policies are described in detail in Note 1 of the Financial Statements.

The Trust records all investments at fair value in its financial statements, with changes in fair value reported as a component of change in unrealized trading gain (loss) in the Statements of Operations. Generally, fair values are based on market prices; however, in certain circumstances, estimates are involved in determining fair value in the absence of an active market closing price (i.e., forward contracts which are traded in the inter-bank market).

Capital Resources

The Trust will raise additional capital only through the sale of Units offered pursuant to the continuing offering, and does not intend to raise any capital through borrowing. Due to the nature of the Trust's business, it will make no capital expenditures and will have no capital assets which are not operating capital or assets.

The Trust maintains 60-75% of its net asset value in cash, cash equivalents or other liquid positions in its cash management program over and above that needed to post as collateral for trading. These funds are available to meet redemptions each month. After redemptions and additions are taken into account each month, the trade levels of the Trust are adjusted and positions in the instruments the Trust trades are added or liquidated on a pro-rata basis to meet those increases or decreases in trade levels.

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Most United States futures exchanges limit fluctuations in futures contracts prices during a single day by regulations referred to as "daily price fluctuation limits" or "daily limits." During a single trading day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract has reached the daily limit for that day, positions in that contract can neither be taken nor liquidated. Futures prices have occasionally moved to the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Trust from promptly liquidating unfavorable positions and subject the Trust to substantial losses which could exceed the margin initially committed to such trades. In addition, even if futures prices have not moved the daily limit, the Trust may not be able to execute futures trades at favorable prices, if little trading in such contracts is taking place. Other than these limitations on liquidity, which are inherent in the Trust's futures trading operations, the Trust's assets are expected to be highly liquid.

The entire offering proceeds, without deductions, will be credited to the Trust's bank, custodial and/or cash management accounts. The Trust meets margin requirements for its trading activities by depositing cash and U.S. government securities with the futures broker and the over-the-counter counterparty. This does not reduce the risk of loss from trading activities. The Trust receives all interest earned on its assets. No other person shall receive any interest or other economic benefits from the deposit of Trust assets.

Approximately 15% to 25% of the Trust's assets normally are committed as required margin for futures contracts and held by the futures broker, although the amount committed may vary significantly. Such assets are maintained in the form of cash or U.S. Treasury Bills in segregated accounts with the futures broker pursuant to the Commodity Exchange Act and regulations thereunder. Approximately 10% to 15% of the Trust's assets are deposited with the over-the-counter counterparty in order to initiate and maintain forward contracts. Such assets are not held in segregation or otherwise regulated under the Commodity Exchange Act, unless such over-the-counter counterparty is registered as a futures commission merchant. These assets are held either in U.S. government securities or short-term time deposits with U.S.-regulated bank affiliates of the over-the-counter counterparty.

The managing operator deposits the majority of those assets of the Trust that are not required to be deposited as margin with the futures brokers and over-the-counter counterparties in custodial accounts with Northern Trust Company. The assets deposited in the custodial accounts with Northern Trust Company are segregated. Such custodial accounts constitute approximately 60% to 75% of the Fund's assets and are invested directly by PNC Capital Advisors, LLC ("PNC"). Prior to March 2014, Horizon Cash Management LLC ("Horizon") served as the cash manager. PNC and Horizon are registered with the SEC as investment advisers under the Investment Advisers Act of 1940. PNC does not guarantee any interest or profits will accrue on the Fund's assets in the custodial account. PNC invest the assets according to agreed upon investment guidelines that first preserve capital, second allow for sufficient liquidity, and third provide a yield beyond the risk-free rate. Investments can include, but are not limited to, (i) U.S. Government Securities, Government Agency Securities, Municipal Securities, banker acceptances and certificates of deposits; (ii) commercial paper; and (iii) short-term investment grade corporate debt; and (iv) Asset Backed Securities.

The Trust occasionally receives margin calls (requests to post more collateral) from its futures broker or over-the-counter counterparty, which are met by moving the required portion of the assets held in the custody account at Northern Trust to the margin accounts. In the past three years, the Trust has not needed to liquidate any position as a result of a margin call.

The Trust's assets are not and will not be, directly or indirectly, commingled with the property of any other person in violation of law or invested in or loaned to Campbell & Company or any affiliated entities.

Off-Balance Sheet Risk

The term "off-balance sheet risk" refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Trust trades in futures and forward contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts there exists a risk to the Trust, market risk, that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the futures interests positions of the Trust at the same time, and if the Trust's trading advisor was unable to offset futures interests positions of the Trust, the Trust could lose all of its assets and the Unitholders would realize a 100% loss. Campbell & Company, Inc., the managing operator (who also acts as trading advisor), minimizes market risk through real-time monitoring of open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 30% however, these precautions may not be effective in limiting the risk of loss.

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In addition to market risk, in entering into futures and forward contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Trust. The counterparty for futures contracts traded in the United States and on most foreign exchanges is the clearinghouse associated with such exchange. In general, clearinghouses are backed by the corporate members of the clearinghouse who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases where the clearinghouse is not backed by the clearing members, like some foreign exchanges, it is normally backed by a consortium of banks or other financial institutions.

In the case of forward contracts, which are traded on the interbank market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a group of financial institutions; thus there may be a greater counterparty credit risk. Campbell & Company trades for the Trust only with those counterparties which it believes to be creditworthy. All positions of the Trust are valued each day on a mark-to-market basis. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Trust.

Disclosures About Certain Trading Activities that Include Non-Exchange Traded Contracts Accounted for at Fair Value

The Trust invests in futures and forward currency contracts. The market value of futures (exchange-traded) contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of the last business day of the reporting period. The market value of swap and forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 3:00 P.M. (E.T.) of the last business day of the reporting period or based on the market value of its exchange-traded equivalent.

Results of Operations

The returns for Series A for the six months ended June 30, 2014 and 2013 were (7.67)% and 9.33%. The returns for Series B for the six months ended June 30, 2014 and 2013 were (7.44)% and 10.64%, respectively. The returns for Series W for the six months ended June 30, 2014 and 2013 were (6.89)% and 9.77%, respectively.

2014 (For the Six Months Ending June 30)

Of the 2014 year-to-date decrease of (7.67)% for Series A, approximately (5.16)% was due to trading losses (before commissions) and approximately (2.71)% due to brokerage fees, management fees, operating costs and offering costs borne by Series A, offset by approximately 0.19% due to investment income.

Of the 2014 year-to-date decrease of (7.44)% for Series B, approximately (5.16)% was due to trading losses (before commissions) and approximately (2.47)% due to brokerage fees, management fees and operating costs borne by Series B, offset by approximately 0.20% due to investment income .

Of the 2014 year-to-date decrease of (6.89)% for Series W, approximately (5.16)% was due to trading losses (before commissions) and approximately (1.92)% due to brokerage fees, management fees, service fees, operating costs and offering costs borne by Series W, offset by approximately 0.19% due to investment income.

During the six months ended June 30, 2014, the Trust accrued management fees in the amount of $12,449,057 and paid management fees in the amount of $12,707,312. Performance fees were accrued in the amount of $0 and paid in the amount of $3,571.

An analysis of the (5.16)% gross trading losses for the Trust for the six months ended June 30, 2014 by sector is as follows:

Sector % Gain (Loss) Commodities (4.73 )% Currencies (2.18 ) Interest Rates 3.41 Stock Indices (1.66 ) (5.16 )%

The Trust had losses in January with gains from interest rate and foreign exchange holdings only partially offsetting declines from stock index and commodity investments. The largest losses for January came from long positioning in global stock indexes by the trend following strategies. Dampened growth momentum in China weighed on global risk assets and deepened the negative sentiment toward the emerging markets. The peso devaluation in Argentina helped push contagion fears to the forefront and added to the sell-off. Somewhat softer employment and housing data in the US called into question the economic growth momentum seen in the second half of 2013. The US Fed's further tapering of quantitative easing only added to the global unease for risky assets like equities. Commodity holdings also produced losses, primarily from non-trend strategies. Energy markets were among the largest losers as the models failed to profitably navigate a volatile trading environment. The volatility was caused by varying cross-currents including inventory data, cold weather, and shifting production expectations. Industrial metal losses came primarily from positions in copper and nickel which fell on the weaker Chinese economic data and resulting emerging market fall-out. Short exposure to gold also produced losses amid safe-haven buying and improving physical demand. Interest rate positioning was successful during the month with trend strategies showing the best gains. Some of the largest profits came from long positioning on long-dated instruments primarily in Europe and the United States as investor sought the safety of interest rate instruments amid growing global uncertainties. Foreign exchange holdings also produced gains during the month. The best performing position was a short holding on the Canadian dollar. The Bank of Canada downgraded its inflation outlook for 2014, pushing the Canadian dollar to a four year low versus the US dollar. The Trust also profited from a short position on the South African rand which experienced steep losses due to the significant depreciation of emerging market currencies seen during the month.

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The Trust continued its losses in February with gains from interest rates not enough to offset losses from foreign exchange and commodity holdings. Foreign exchange positions produced some of the largest losses with trend and non-trend strategies contributing. Short positioning in the New Zealand dollar and Australian dollar (both versus the US dollar) caused the most significant losses. The New Zealand dollar strengthened after some stronger than expected economic data and hawkish comments from their finance minister. The Reserve Bank of Australia shifted their monetary posture from one of easing to a more neutral stance helping to push the Aussie dollar higher. Rising commodity prices during the month also provided a tailwind to these so-called "commodity currencies." Other large losses for the month came from commodities where the Trust experienced declines across most of the sub-sectors and from both trend and non-trend strategies. Short positions in precious metals produced the largest losses when silver and gold both rallied sharply on safe-haven buying as geopolitical fears rose due to unrest in Ukraine. Industrial metals also contributed as a weaker US dollar provided upward price pressure hurting shorts. Short positioning in gasoline, especially early in the month, hurt the Trust as prices rose due to decreasing stockpiles and curtailed production. Soft commodities, namely short positioning in sugar, also caused losses as drought conditions in Brazil created supply concerns. Interest rate positioning provided small offsetting gains. Profits were found in long holdings on long-dated instruments. Japanese government bonds rose as a combination of weaker economic data and further corporate lending activity by the Japanese government helped to push prices higher. German notes benefitted from tame inflation data and safe-haven buying amid geopolitical turmoil in the region. Stock index holdings were relatively flat on the month. The non-trend strategies detracted from positive trend following performance as some short positioning in Asia and parts of Europe was hurt by a sharp bounce-back rally after the January sell-off..

The Trust closed out the quarter with continued losses in March. The worst declines came from interest rate, stock index, and foreign exchange holdings. Some of the largest losses for the month came from interest rate positions, where trend strategies produced the declines while non-trend strategies showed some offsetting gains. A bulk of the sector losses were found in long positioning on long-dated instruments. Around mid-month, the US Federal Reserve announced additional tapering of quantitative easing (QE) and even hinted that an outright rate increase might occur sooner than expected, sending interest rate markets sharply lower and hurting portfolio positioning. Stock index positions also produced losses with both trend following and non-trend strategies contributing. Trend strategies held long positioning on the NASDAQ 100 index, which suffered due to technology valuation concerns, a tightening of stimulus by the US Fed, and uncertainty over Russia's annexation of Crimea and recent display of territorial aggression. Non-trend strategies went short the Hang Seng index in Hong Kong, which fell for the first half of the month, only to reverse higher on expectations for new stimulus measures in China to combat slowing growth within the country. Foreign exchange positions showed gains within the non-trend strategies; however, trend strategy losses in the sector overwhelmed them leading FX into the red for the month. The Trust was positioned short US dollars when the US Fed surprised markets with hawkish language following the March FOMC meeting. This caused the dollar to rally sharply against other currencies resulting in losses in the sector. Commodity positions produced losses from the trend following strategies while non-trend systems produced some offsetting gains. Some of the worst performing sub-sectors during the month included energy and industrial metals. The Trust was long crude, which declined amid slower Chinese growth. Natural gas longs fell on expectations for warmer temperatures in the US. Some offsetting gains were found in long grain positioning as the sub-sector posted its best quarterly rally since 2010.

Offsetting gains and losses leave the Trust slightly lower in April. Profits from commodities, and to a lesser extent from interest rates, were offset by losses from foreign exchange and stock index holdings. Some of the largest losses during April came from foreign exchange positions. The non-trend strategies produced the bulk of the declines while trend strategies showed some gains in the sector. The non-trend strategies struggled with price action that was not favorable for the underlying model signals. The Trust was short Japanese Yen when the US Fed minutes dampened bets that US policy makers were moving towards raising interest rates, causing the Yen to appreciate. Trend following strategies profited from a long position on the British Pound, which rose to multi-year highs. Stock index positions also produced losses within the non-trend strategies while the trend following programs showed some offsetting gains. The non-trend models were positioned long the Japanese Nikkei index when the Bank of Japan disappointed markets with no new stimulus, causing a sell-off in Japanese equities. The German DAX index also contributed to losses as the non-trend strategies built long exposure, only to see the index trade lower as renewed Ukrainian/Russian unrest rattled investors. Commodity positions produced the best gains seen during the month as both non-trend and trend strategies produced profits. Nickel was a strong performer for the Trust as it trended higher throughout the month. Indonesia's ongoing export ban and Ukrainian unrest helped to push the metal to a 14-month high. Gains also came from long coffee holdings, which rose on Brazilian production concerns. Natural gas was another market that produced solid gains, especially within the non-trend programs. Cool spring temperatures and inventory concerns led to the rise in prices. Interest rate holdings added to gains during April. Losses from short holdings on short-dated instruments were more than offset by gains from long positions on long-dated instruments. A combination of pockets of softer economic data linked with the civil unrest in Eastern Europe helped to propel prices higher during the month.

The Trust showed gains in May led by interest rate and equity index positions. Profits from interest rate and stock index positions were somewhat offset by losses from commodity and foreign exchange holdings. The largest gains for May came from positioning in global interest rates driven by trend following strategies. Profits were seen in long-dated instruments where the Trust held long positions, while small losses came from short-dated holdings where the Trust was generally short. Fixed income instruments rallied during the month amid pockets of weaker than expected global economic data and as global central banks once again indicated accommodative monetary policies. Overall market positioning also played a role in the rally as some investors found themselves under-invested in global bonds and some hedge funds scrambled to cover shorts amid the rising prices. Long global stock index positions also produced gains for the Trust during May primarily driven by trend following strategies. Stocks showed choppy price action during the first half of the month, but then staged a rally as dovish global central banks and a surge in merger & acquisition activity pushed many global indexes to new highs. Commodity holdings produced the largest monthly losses with both trend and non-trend strategies contributing. The worst performing sub-sector was the grains where long positioning in wheat and corn suffered amid weak export sales, favorable planting weather in the US, and easing tensions between Ukraine and Russia. Base metals trading proved unprofitable amid choppy price action. A long position in coffee suffered as steady harvest progress in Brazil and a healthy global supply outlook pushed prices sharply lower after an almost 60% run-up this year. Foreign exchange holdings produced losses primarily from trend strategies as non-trend strategies showed gains. Some of the worst performing FX holdings included long positions in the euro and British pound. European Central Bank President Draghi signaled that policy makers are ready to expand stimulus resulting in a weakening of the euro, and the Bank of England indicated that a rate hike was not as imminent as markets had been expecting, causing the pound to fall from multi-year highs.

The Trust closed out the quarter with gains in June. Profits from stock index, commodity, and foreign exchange positions were somewhat offset by losses from interest rate holdings. The largest gains for June came from positioning in global stock indexes driven by both trend following and non-trend strategies. Long positions in North American stock indexes benefitted from dovish comments from Federal Open Market Committee head Yellen despite pockets of stronger economic data. Strong merger and acquisition activity also provided a tailwind for US stocks. A long equity holding in Taiwan showed profits as Chinese data indicated signs of improving growth. Smaller, offsetting losses came from long European holdings where a rash of weaker than expected economic data and falling confidence readings overwhelmed new European Central Bank stimulus actions. Commodity holdings produced additional monthly gains with only trend strategies contributing. Some of the best monthly gains came from long positioning on zinc, which surged in price amid a sharp drop in stockpiles. Long energy exposure, especially to Brent and crude, rose as instability in Iraq rattled oil markets. Cattle prices rallied to a record high on lingering supply concerns, benefitting the Trust's position. Offsetting losses came from short positions on precious metals as prices rose on a blend of geopolitical instability and ongoing accommodative US monetary policy. Foreign exchange holdings produced profits primarily from trend strategies as non-trend strategies showed losses. Some of the best performing FX holdings included a long position on the New Zealand dollar, which strengthened when the Reserve Bank of New Zealand lifted borrowing costs for the third time this year. Long positioning on the British pound benefitted when the Bank of England (BOE) hinted it may raise interest rates sooner than expected. A surprise interest rate cut in Mexico hurt the Trust's long positioning on the peso. Interest rate trading showed losses during the month with most declines coming from non-trend strategies. Hawkish comments from BOE head Carney caused a sharp sell-off in Gilts, which hurt the Trust's positioning. Rising Australian fixed income prices also hurt non-trend strategies, which expected prices to fall.

2013 (For the Six Months Ending June 30)

Of the 2013 year-to-date increase of 9.33% for Series A, approximately 12.97% was due to trading gains (before commissions) and approximately 0.16% was due to investment income, offset by approximately (3.80)% due to brokerage fees, management fees, operating costs and offering costs borne by Series A.

Of the 2013 year-to-date increase of 10.64% for Series B, approximately 12.97% was due to trading gains (before commissions) and approximately 0.18% was due to investment income, offset by approximately (2.51)% due to brokerage fees, management fees and operating costs borne by Series B.

Of the 2013 year-to-date increase of 9.77% for Series W, approximately 12.97% was due to trading gains (before commissions) and approximately 0.16% was due to investment income, offset by approximately (3.36)% due to brokerage fees, management fees,service fees, performance fees, operating costs and offering costs borne by Series W.

During the six months ended June 30, 2013, the Trust accrued management fees in the amount of $9,981,370 and paid management fees in the amount of $9,507,183. Performance fees were accrued in the amount of $3,034,349 and paid in the amount of $49,548.

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An analysis of the 12.97% gross trading gains for the Trust for the six months ended June 30, 2013 by sector is as follows:

Sector % Gain (Loss) Commodities 7.28 % Currencies 3.92 Interest Rates (3.06 ) Stock Indices 4.82 12.97 %

2013 began on a positive note, as the Trust posted solid gains. Equity Indices and Foreign Exchange sectors responded to improved economic outlooks in the U.S. and Europe and to the promise of aggressive fiscal and monetary policy in Asia. Commodities were flat on the month, and the Interest Rates sector was the only significant detractor from performance. The Trust lost on a net-long position in global long-term rates as the sector moved lower on the same macroeconomic drivers that pushed equity markets higher and a general rotation out of bonds and into stocks. From a strategy perspective, longer-term trend following models were the most profitable strategies in January, with other complimentary strategies providing additional returns. Long global equity positions primarily from European and Asian holdings recorded the majority of gains. Positive data points out of Europe included the softening of tough "Basel III" regulations, a larger-than-expected repayment by banks of LTRO funds to the ECB, Spanish and Italian bond auctions bringing the lowest yields in months, and German ZEW surveys of sentiment that were much more optimistic. In Asia, the new Japanese government used every possible opportunity to push for a weakening of the Japanese Yen and a 2% inflation target to end decades of deflation. Exporters rallied as the Yen weakened throughout the month. The Trust's short Japanese Yen position was the most profitable trade in the portfolio during January. Losses in Interest Rates were not enough to offset gains as the sector exhibited a generally negative correlation to equities, hurting the Trust's long position.

The Trust, which consists of both trend following and non-trend following strategies, profited in February. The majority of gains came from the foreign exchange sector, while losses in equity index trading offset some of these gains. Interest rates and commodities had little impact on performance. Foreign exchange was the most profitable sector, contributing well over 1% to the Trust. In the U.K., the British Pound (GBP) was down over 4% in February as weak economic fundamentals led Moody's to downgrade the U.K.'s Aaa sovereign debt rating to Aa1. The Trust made over 1% in GBP on a short position against the U.S. Dollar. The Canadian Dollar (CAD) also declined over 3% in February on global risk-off positioning and developments indicating a slowing Canadian economy. This led to additional gains on a short position against the currency. These gains were partially offset by losses from trading in equity indices where long positioning in European indices was unprofitable. Political uncertainty in the region, threatening a smooth recovery, caused downward moves in several major indices and reversed recent upward trends. Trading in North American indices was relatively flat for trend following strategies and losses in the region were driven by faster, non-trend following strategies getting caught in volatile market action. Trading in both interest rates and commodities was relatively flat in February. Renewed concerns over European sovereign debt and the impending U.S. sequester drove interest rate markets, producing small gains for the Trust. In commodities, gains in metals were offset by losses in energies, driven by the same macroeconomic factors that impacted the interest rates sector.

The Trust's strategies profited in three of four major sectors traded in March, with the majority of gains coming from commodities. Major economic drivers included Chinese and Japanese political developments, positive economic data in the U.S., and the bank bailout situation in Cyprus. Trend following strategies contributed over 2% to the Trust, while other non-trend strategies detracted from performance. Gains in commodities were led by short positions in copper and aluminum as these industrial metals fell sharply during the month. Copper was pressured by new property tightening measures in China aimed at reining in overheated housing markets. Aluminum fell on reports that production climbed 2.4% in February. Soft commodities and energies also added to profits as supply and weather data moved markets in the direction of the Trust's positions. Equity indices, specifically long positioning in the United States and Japan, also added to monthly gains. A sharp uptick in U.S. non-farm payrolls and a downtick in the unemployment rate, followed by data indicating a steadily improving U.S. housing market helped push index levels higher. Japanese stocks rose for a seventh straight month, gaining over 7%, as Prime Minister Abe's efforts to end deflation began with his appointment of Haruhiko Kuroda to lead the Bank of Japan (BOJ). Positioning in foreign exchange contributed small gains to the Trust. The most profitable trade continues to be short Japanese Yen, with the new BOJ Governor stating he will do "whatever it takes" to achieve his goal of a 2% inflation target within two years.

The Trust gained in both trend following and non-trend following strategies in April, with gains coming from all sectors traded. Major moves in metals and long-dated interest rate markets led gains, each adding over 3% to the Trust. Slow global growth, disappointing economic data, low or stable inflation rates, and continued quantitative easing pushed rates lower and equity markets higher across major markets, extending or establishing trends and other alpha opportunities. Commodity markets recorded the best gains for the Trust, led by precious metals, base metals, and energies. Short positioning in precious metals benefitted from a sharp decline in prices. The weakness in gold can be attributed to several factors including low or falling inflation readings, concern that European central banks will sell gold reserves to help fund bail-out costs, outflows from related exchange traded products, and signs of slower global economic growth, especially in China. The Trust began April short precious metals, posting the majority of gains on April 12 & 15 when the sector significantly declined, at which point the Trust began to take profits and reduce its positions. Long positions on long-dated interest rate markets in the U.S., Canada, and Australia were also profitable during April. Disappointing economic data, stable inflation, falling commodity prices, and dovish stimulus policy in Canada pushed fixed income prices higher. This particularly impacted the long-dated rate contracts, as they are more sensitive to the interest rate movements than the short-dated rates. Stock index positions added further gains during the month, with long positioning in Japan, Australia, and the U.S. leading the way. Japanese and Australian markets moved higher on continued central bank easing while U.S. markets bounced around throughout the month but finished higher, hitting record highs in the S&P 500 and Dow Jones Industrial Average. The foreign exchange sector added small gains during the month. Trend-following strategies lost money in the sector, but non-trend strategies more than offset those losses. By market, the Japanese Yen and New Zealand Dollar versus the U.S. Dollar were the most profitable trades in April.

The Trust's gross trading was basically flat in May. Gains in stock indices, foreign exchange, and commodity holdings were offset by losses in fixed income positions. Both trend and non-trend strategies showed gains in long equity index positions. The gains were concentrated in European and US holdings. In Europe, gains were led by the UK where manufacturing and business confidence data strengthened. In the US, stocks rose after employment-related data showed signs of improvement and consumer confidence measures were also better than expected. Foreign exchange gains came primarily from long US dollar positions against the South African rand, the British pound, and the Canadian dollar. The US dollar strengthened against all major currencies amid better economic data and signs that the US Federal Reserve may soon begin to taper its quantitative easing (QE) measures. Commodity holdings added small additional gains to the Trust. Gains were found in short precious metal positions as both gold and silver declined on concerns over QE tapering and weak physical demand out of Asia. Grain positions, namely long soybean positioning, benefitted from strong Chinese export sales and US supply concerns. Unfortunately, these gains were mostly offset by losses from industrial metal and energy positions. Short positions in industrial metals, namely copper and aluminum, moved against the Trust as prices rose due to signs of tightening supply and amid short covering. Long positioning in natural gas was the biggest loser in energy holdings as prices fell sharply when seasonal demand waned and inventories rose more than expected. Overall monthly gains were offset by losses in long fixed income positions within Europe, the US, Japan, and Canada, primarily from the long-dated holdings within the trend-following strategies. Global fixed income prices fell sharply during the month for the same reasons the US dollar strengthened - mainly over concern that US QE measures would begin to wind down in the near future amid strengthening economic data which could cause interest rates to rise.

The Trust had a net loss in June. Declines in stock indices and foreign exchange were only partially offset by gains from commodities and fixed income. The primary focus of global markets in June revolved around the fear that the US Federal Reserve was beginning to signal that their aggressive QE measures were going to be reduced or "tapered" amid stronger US economic trends. World markets have enjoyed the benefits of the unprecedented liquidity that the US central bank has pumped into the banking system over the past five years, however the announcement by Fed Chairman Bernanke on June 19th that QE tapering could begin as soon as year-end roiled global markets. Trend strategies showed their largest losses in long equity index positions. The losses were spread across all global equity markets as they sold off on the concern that US QE tapering could be expected in the near future. Non-trend strategies showed gains in foreign exchange positioning, but the trend-following models produced losses that more than offset any gains. The trend strategies showed the greatest losses on the Japanese yen and the British pound as both showed sharp trend reversals post Bernanke's tapering comments mid-month. Trend-following strategies delivered gains in commodities, especially within short industrial metals and precious metals positioning. Concerns over a Chinese credit crunch plus fear over the potential impact from QE tapering pushed both types of metals lower. Gains were somewhat offset by losses from energy positions which generally saw sharp mid-month trend reversals due to the strengthening US dollar amid fears that monetary accommodation would begin to be withdrawn. Both non-trend and trend strategies showed gains in short positioning on fixed income instruments. Global fixed income markets sold off sharply on fears over QE tapering. The faster reacting non-trend models quickly built short positions and benefitted from the extended declines.



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Source: Edgar Glimpses

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