Introduction
The offering of its Units of Limited Partnership Interest commenced on January 12, 1994. The initial offering terminated on April 15, 1994 and the Fund commenced operations on April 18, 1994. The continuing offering period commenced at the termination of the initial offering period and terminated on January 6, 2012.
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 Fund’s significant accounting policies are described in detail in Note 1 of the Financial Statements.
The Fund records all investments at fair value in its financial statements, with changes in fair value reported as a component of realized and change in unrealized trading gains (losses) 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 interbank market).
Capital Resources
Effective January 6, 2012, units in the Fund were no longer offered for sale. For existing investors in the Fund, business has been and will be conducted as usual. There will be no change in trading, operations or monthly statements, etc., and redemptions will continue to be offered on a monthly basis.
The Fund does not intend to raise any capital through borrowing. Due to the nature of the Fund’s business, it will make no capital expenditures and will have no capital assets, which are not operating capital or assets.
The Fund generally maintains 60 to 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 are taken into account each month, the trade level of the Fund is adjusted and positions in the instruments the Fund trades are liquidated, if necessary, on a pro-rata basis to meet those increases or decreases in trade levels.
Liquidity
Most United States commodity exchanges limit fluctuations in the prices of futures contracts 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 Fund from promptly liquidating unfavorable positions and subject the Fund 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 Fund 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 Fund’s futures trading operations, the Fund’s assets are expected to be highly liquid.
The entire offering proceeds, without deductions, were credited to the Fund’s bank, custodial and/or cash management accounts. The Fund meets margin requirements for its trading activities by depositing cash or U.S. government securities with the futures brokers and the over-the-counter counterparties. This does not reduce the risk of loss from trading futures, forward and swap contracts. The Fund receives all interest earned on its assets. No other person shall receive any interest or other economic benefits from the deposit of Fund assets.
Approximately 10% to 30% of the Fund’s assets normally are committed as required margin for futures contracts and held by the futures brokers, 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 brokers pursuant to the Commodity Exchange Act and regulations thereunder. Approximately 5% to 15% of the Fund’s assets are deposited with over-the-counter counterparties or centrally cleared in order to initiate and maintain forward or 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 counterparties.
The general partner deposits the majority of those assets of the Fund that are not required to be deposited as margin with the futures brokers and over-the-counter counterparties in a custodial account with Northern Trust Company. The assets deposited in the custodial account with Northern Trust Company are segregated. Such custodial account constitutes approximately 60% to 75% of the Fund’s assets and are invested directly by PNC Capital Advisors, LLC (“PNC”). PNC is registered with the SEC as an investment adviser 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 invests 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, agency, or municipal securities; (ii) banker acceptances or certificates of deposits; (iii) commercial paper or money market securities; (iv) short-term, investment-grade corporate debt securities; or (v) investment-grade, asset backed securities.
The Fund occasionally receives margin calls (requests to post more collateral) from its futures brokers or over-the-counter counterparties, which are met by moving the required portion of the assets held in the custody accounts at Northern Trust Company to the margin accounts. In the past three years, the Fund has not needed to liquidate any position as a result of a margin call.
The Fund’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 Fund trades in futures, forward and swap 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 Fund, 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 Fund at the same time, and if the Fund’s trading advisor was unable to offset futures interest positions of the Fund, the Fund could lose all of its assets and the Limited Partners would realize a 100% loss. Campbell & Company, the general partner (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.
In addition to market risk, in entering into futures, forward and swap contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Fund. The counterparty for futures contracts and centrally cleared swap 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 Fund only with those counterparties which it believes to be creditworthy. All positions of the Fund are valued each day at fair value. There can be no assurance that any clearing member, clearinghouse or other counterparty will be able to meet its obligations to the Fund.
Disclosures About Certain Trading Activities that Include Non-Exchange Traded Contracts Accounted for at Fair Value
The Fund invests in futures, forward currency, and centrally cleared swap contracts. The fair 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 fair value of 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. The fair value of centrally cleared swap contracts is determined by using currency market quotations provided by an independent external pricing source.
Results of Operations
The returns for the six months ended June 30, 2022 and 2021 were 36.15% and 11.80%, respectively. During the six months ended June 30, 2022 and 2021, the Fund accrued brokerage fees in the amount of $5,441,976 and $4,879,296, respectively, and paid brokerage fees in the amount of $5,220,106 and $4,846,119, respectively. No performance fees were accrued or paid during these periods.
2022 (For the Six Months Ended June 30)
Of the 36.15% year to date return, approximately 40.45% was due to trading gains (before commissions), offset by approximately (0.07)% due to investment loss and approximately (4.23)% due to brokerage fees, operating expenses and offering costs borne by the Fund. An analysis of the 40.45% trading gains by sector is as follows:
| Sector | | % Gain (Loss) | |
| Credit | | | 0.48 | % |
| Commodities | | | 12.77 | % |
| Foreign Exchange | | | 15.26 | % |
| Interest Rates | | | 10.87 | % |
| Equity Indices | | | 1.07 | % |
| | | | 40.45 | % |
The Fund showed a gain in January with gains coming from interest rate, commodity, and foreign exchange (FX) positions, while stock index and credit holdings produced some partially offsetting losses. Interest rate positions produced the largest gains for the Fund during January, with profits most pronounced in long-dated instruments. Global yields jumped (prices fell) as persistent, rising inflation prompted central banks to increase efforts in tightening monetary policy. Short UK gilt positioning contributed the most sizable gains after UK inflation hit its highest reading since 1992 on surging demand, higher energy costs, and supply chain disruptions. Commodity trading provided additional profits for the Fund during the month. Long positioning on the petroleum complex generated the best sector gains. Energy markets advanced as supply constraints and heightened geopolitical tensions coincided with a recovery in demand amid easing concerns surrounding the severity of the Omicron variant. Longs on soy products also produced gains as soy markets advanced on tight supply expectations amid persistent South American weather concerns. Foreign exchange trading produced additional gains for the Fund with long US dollar positions (versus short foreign currency) benefiting. The greenback rallied during the second half of January with the DXY dollar index reaching a multi-year high on back of the decidedly hawkish approach from the Federal Reserve. At the January FOMC meeting, the Fed signaled they intend to raise interest rates as early as March and the market subsequently priced in five hikes during 2022. Largely long positioning on global stock indices produced losses for the Fund in January, with most major benchmarks posting large losses for the month. Investor worries about inflation, persistent supply chain issues, and the upcoming rate hikes from the Federal Reserve fueled the risk-off trading. In credit trading, short protection positions generated further offsetting losses as US and European credit spreads widened sharply alongside the unwind of risky assets.
The Fund showed a modest loss in February with losses came from foreign exchange, credit, fixed income, and stock index positions as commodity holdings produced some partially offsetting gains. Foreign exchange trading produced losses for the Fund. Short positions in developed market currencies (against long USD) were overwhelmed as the recent strength in the greenback was countered by this month’s demand for commodity currencies like the Australian and New Zealand dollars. Short positions in some Eastern European currencies (against long USD) provided partially offsetting gains as Russian contagion fears drove weakness in Polish and Hungarian assets. In credit trading, short protection positions generated further losses as US and European credit spreads widened sharply alongside the unwind of risky assets. Interest rate positions caused additional losses in February. A late month flight-to-safety rally sparked by the intensifying Russia/Ukraine conflict reversed earlier weakness. Losses in German and Australian 10-year bonds overwhelmed gains made in UK Gilts and US Treasuries. Global stock indices also detracted from the Fund amid mixed positioning during the month. February began with most major indexes fluctuating as investors focused on hotter than expected inflation and assessed prospects for rate hikes and quantitative tightening. By mid-month sentiment turned negative as the focus shifted from monetary policy to geopolitical concerns and the unprecedented Russian sanctions. Commodity trading provided positive returns for the Fund during the month. Long positioning on the petroleum complex generated the best sector gains as energy markets advanced amid continued supply constraints and elevated risk premiums stemming from geopolitical tensions between Russia and Ukraine. Some long grain holdings also generated gains as grain markets rallied sharply across the board on supply concerns following Russia’s attack on Ukraine.
The Fund showed a strong gain in March with gains coming from commodity, foreign exchange, fixed income, stock index, and credit positions. Commodity trading provided the strongest returns for the Fund during the month. Long positioning across the energy complex resulted in the best sub-sector gains as global demand continued to recover from the pandemic while the war in Europe further squeezed an already tight market. Base metal holdings also contributed gains as long positioning profited from a sharp rally across the complex as Russia’s invasion of Ukraine coincided with a historic supply shortage. Nickel dominated industrial metal returns following outperformance on the back of a short-squeeze that saw prices leap 85% over two days, a move that ultimately resulted in an unprecedented 6-day trading halt on the LME. Foreign exchange trading produced additional profits for the Fund with both the developed market (DM) and emerging market (EM) currencies contributing. A short position on the Japanese yen drove the largest DM gains as the JPY weakened on the continued ultra-loose monetary policy in Japan relative to rising yields in the US. A long position on the Brazilian real was also profitable as the BRL benefited from price increases in Brazilian exports as well as general demand for higher yielding currencies. Interest rate positions also contributed gains with short positioning on Treasuries leading profits. The Federal Reserve’s policy normalization began in March and leaned more hawkish than expected which proved profitable for short 2-year and 10-year UST positions. Global stock indices further added to profits as momentum and short-term strategies were able to navigate the significant mid-month reversal in equities. Short positions to start the month were profitable as stocks traded lower on geopolitical concerns, an FOMC rate hike, and hawkish Fed commentary. However, risk sentiment turned positive on war de-escalation prospects during the latter half of the month and a shift in model positioning captured additional gains. In credit trading, short protection positions generated nominal gains as US and European credit spreads tightened alongside stock indices and other risky assets.
The Fund produced a gain during April. Profits came from foreign exchange, interest rate, and commodity holdings, while credit positions and stock index trading had little P&L impact. Foreign exchange trading produced the largest Fund returns in April. Long US dollar exposure proved profitable as the greenback saw a sharp rally over the month. The USD gained on the increasingly aggressive US monetary policy and the significant rise in longer dated interest rate yields. The greenback also benefited from global growth concerns as Europe continues to struggle with the fallout from Russia’s invasion of Ukraine, and China enacted lockdowns in a bid to curtail the spread of the latest COVID-19 variant. Interest rate positions produced additional profits during April, with gains concentrated in long-dated instruments. Short positioning on US Treasuries produced the greatest profits for the sector as the Fed prepared the double act of rate hikes with quantitative tightening. The prospect of tighter monetary policy coupled with concerns over surging inflation around the world sent bond prices lower and real yields higher. Commodity positions also generated gains during the month. Long holdings on the energy complex generated the best commodity sub-sector returns as energy markets advanced on continued supply concerns, although gains were capped as China’s extended coronavirus lockdowns curbed demand for energies. Grain holdings provided additional returns for the Fund as the war in Ukraine, drought concerns, and increased biofuel demand lifted prices higher. Credit trading was relatively flat as short protection positions generated additional offsetting losses as US and European credit spreads widened amid the risk-off environment. Mixed positioning in global stock indices had little impact on the Fund in April, with nearly all major benchmarks logging losses for the month. The risk-off trading was fueled by the hawkish shift in global monetary policy, demand destruction from China’s Covid lockdowns, and continued geopolitical uncertainty centered on Ukraine.
The Fund produced a loss during May. Losses came from foreign exchange, stock index, and commodity positions. Fixed income and credit index trading had little P&L impact on the month. Foreign exchange trading produced the largest losses for the Fund during May. Long US dollar positions (versus short the foreign currency) experienced losses amid the broader weakness in the USD. While the greenback remains stronger on the year, the DXY dollar index experienced a reversal during May. The foreign exchange market is reconsidering whether US policy makers might slow or potentially pause the tightening cycle in the latter half of 2022, which limited the demand for the US currency. Additionally, data over the course of the month showed the potential of a weaker US consumer which also contributed to the weakness in the buck. Stock index positioning generated additional losses over the course of the month. Global equity returns were mixed during May amid volatility across the global indices as markets weighed accelerating inflation concerns in Europe with easing Covid restrictions in China and some investor expectations of a possible slowdown in US monetary tightening. Commodity holdings generated modest losses during the month. Net long positioning on the grain complex incurred losses for the Fund as grain markets plummeted into month-end on the possibility that Russia will allow exports of Ukrainian grain through the Black Sea. Long holdings on energies generated partially offsetting gains as those markets advanced on continued fallout from the war in Ukraine, in addition to easing Covid restrictions in Asia, a busy travel season, and low inventories. Mixed positioning in fixed income had little impact on the Fund in May. Longs on European interest rate instruments produced losses as those markets declined (yields rose) as record inflation prints increased bets the BoE and ECB will have to quicken the pace of rate hikes to quell surging prices. Canadian Government Bonds produced some offsetting gains amid a hawkish approach from the BoC. Finally in credit trading, short protection positions also had little impact on the Fund during the month.
The Fund produced a gain during June. Profits came from foreign exchange (FX), interest rate, and stock index holdings. The commodity sector and credit positions had little P&L impact. Foreign exchange trading generated the largest gains for the Fund during the month. Long USD positions (versus short the foreign currency) benefited from the broad-based rally in the greenback. Dominating the market narrative, inflation remains stubbornly high and the Federal Reserve continues to lead the hawkish charge. Following the hotter US CPI print early in the month, the Fed indicated that slowing inflation is more important than the possibility of slower economic growth as a result of higher rates, which helped drive the wide-reaching appreciation in the dollar. Fixed income positions produced additional returns with gains concentrated in long-dated instruments. Persistent inflation prompted central banks to take more aggressive action in their hiking cycles, leading to several greater-than-expected rate increases. Short positioning on Australia and US 10-year instruments profited as yields rose (prices fell) in reaction to the RBA and Fed both delivering rate hikes that exceeded expectations. A fifth consecutive rate hike from the Bank of England, accompanied by hawkish guidance, pushed UK yields higher (prices lower) to the benefit of short Gilt positioning. Net short stock index positioning provided additional gains during the month. Global stock indices sold-off sharply as investors became increasingly convinced that the pace of rising interest rates will trigger a recession. Comments from global central bank speakers throughout the month remained hawkish and Fed Chair Powell even conceded that a soft landing could be “very challenging.” In credit trading, short protection positions were relative flat as US and European credit spreads widened sharply alongside the selloff in risky assets. The models flipped to long protection at the end of June and recovered some of their earlier losses. Commodity trading had little impact on the Fund during the month as gains made from short wheat holdings were offset by losses generated from energy positions.
2021 (For the Six Months Ended June 30)
Of the 11.80% year to date return, approximately 15.72% was due to trading gains (before commissions) and approximately 0.07% due to investment income, offset by approximately (3.99)% due to brokerage fees, operating expenses and offering costs borne by the Fund. An analysis of the 15.72% trading gains by sector is as follows:
| Sector | | % Gain (Loss) | |
| Credit | | | (2.03 | )% |
| Commodities | | | 5.36 | % |
| Foreign Exchange | | | 10.85 | % |
| Interest Rates | | | (5.32 | )% |
| Equity Indices | | | 6.86 | % |
| | | | 15.72 | % |
The Fund showed a decline in January with losses coming from interest rate, foreign exchange (FX), stock index, and credit positions, while commodity holdings produced some partially offsetting gains. Interest rate positions produced the largest losses during the month with declines most pronounced in long-dated instruments. Long positions on US rate markets suffered as the Democrats took control of the Senate which sent yields higher (prices lower) amid increased expectations for a large scale fiscal stimulus package being passed. Long positioning on Australian and Canadian rates also generated losses when prices fell (yields rose). Australian inflation was higher than expected and the Bank of Canada indicated the country would not need as much quantitative easing as initially expected. Foreign exchange trading contributed additional losses during January. The largest FX losses came from long emerging market positions (against the USD), specifically in the Colombian peso and Brazilian real. The Latin American currencies were the top underperformers during the month, sinking on regional spreading of the COVID-19 virus and slow vaccine rollouts in the region. Global stock index trading also added losses to the Fund during the month. Long positioning on many global stock indexes saw gains early in the month, however late month risk aversion erased those gains and ultimately generated losses. Concerns about liquidity induced asset bubbles, retail driven stock volatility in companies with high levels of short interest, and limited vaccine availability and distribution hurdles all contributed to the risk-off sentiment late in the month. In credit trading, short protection positions generated losses as European and US credit spreads widened amid risk-off sentiment, especially within Europe. Commodities generated some partially offsetting gains for the Fund. Long positions on the grain complex profited as strong Chinese demand linked with supply concerns pushed prices to multi-year highs during the month. A long holding on gasoline also added to gains as prices rose driven by fiscal stimulus payments to consumers and hopes for economic reopening on the back of mass COVID-19 vaccinations.
In February, the Fund showed a gain with profits coming from commodity, stock index, foreign exchange, and credit positions, while interest rate holdings produced some partially offsetting losses. Commodities trading produced the largest Fund gains during February. Long holdings on the petroleum complex, specifically on gasoline, Brent, and WTI, generated gains on declining COVID infection trends and a deep freeze in Texas that negatively impacted production. Long positioning on the grains, softs, and industrial metals also proved profitable amid US dollar weakness and strong expected demand from healing world economies. Global stock indexes generated additional profits during the month. Long positioning on many global stock indexes profited as most major equity indexes advanced during the month. Declining COVID infection rates, improving COVID vaccine distribution trends, and expectations for the passage of President Biden’s large US fiscal stimulus package all served as major tailwinds for global stock markets. Foreign exchange trading in the developed markets produced gains for the Fund. A long British pound holding (against short USD) was among the best performers as the GBP benefited from an efficient vaccine roll-out and optimism about the economic recovery in the United Kingdom. Mixed positioning in the FX markets proved beneficial as a short holding on the Japanese yen (versus long the greenback) benefited from the strength in the US markets relative to those in Japan. Interest rate positions produced the largest offsetting losses during the month with declines most pronounced in long-dated instruments. Long positioning on long-dated rate instruments in Australia and Canada led sector losses as note prices in those countries fell sharply (yields rose) during February. Growing global concerns about mounting inflationary pressures sparked by pent-up demand from COVID lockdowns linked with massive monetary and fiscal stimulus sent most global yields sharply higher, depressing bond prices and generating losses for the Fund.
March saw all the Fund’s asset classes produce gains with profits coming from foreign exchange, stock index, commodity, interest rate, and credit positions. Foreign exchange trading in both the developed and emerging markets produced the largest Fund gains during March. A short Japanese yen holding (against long USD) was the best performing FX position as the JPY sank to its lowest level in a year. The move was primarily driven by the stronger greenback as the COVID-19 vaccine rollout and stimulus efforts in the US caused the dollar to strengthen. Short positioning on the Australian and New Zealand dollars (against long USD) was also profitable after the Reserve Bank of Australia (RBA) continued its bond purchase program and following the New Zealand government’s efforts to curb property speculation. Global stock indexes generated additional profits for the Fund. Long positioning on many global stock indexes profited as most major equity indexes advanced during the month. Positive progress with the COVID-19 vaccine rollout along with fiscal and monetary stimulus support continued to underpin the rally in most global equities. Commodity holdings also produced gains during March. The Fund’s nimble short-term suite of models profitably traded the intra-month volatility within the petroleum complex. A short natural gas position benefited from warmer domestic weather forecasts which led to additional energy sub-sector gains. Long grain positions also produced profits for the Fund as the grain complex advanced sharply into month-end after a USDA report showed planting estimates below market expectations. Interest rate positions contributed small additional profits during the month with gains most notable in long-dated instruments. Long positioning on Australian 3- and 10-year notes produced profits after the RBA doubled down on bond purchases and policymakers expressed concern over the speed of the nation’s economic recovery. Credit trading was also profitable during March as short protection positions generated gains as most US and European credit spreads narrowed amid the risk-on environment.
In April, the Fund showed a gain with profits coming from commodity, stock index, and credit holdings, while foreign exchange and fixed income positions created some partially offsetting losses. Commodity holdings produced the best Fund gains during April. Long grain holdings provided profits as the complex rallied sharply throughout the month amid crop concerns in key planting regions and strong demand from top importer China. Long positions on the petroleum and industrial metal complexes proved profitable as prices rose during April driven by rising demand expectations as global economies begin to emerge from the COVID-19 pandemic. Global stock indexes generated additional profits for the Fund. Long positioning on many global stock indexes profited as most major equity indexes advanced during the month. Ongoing fiscal and monetary stimulus, especially from the US, along with strong corporate earnings and improving COVID-19 vaccination rates created an ideal environment for equity appreciation. Credit trading was also profitable during April as short protection positions generated gains as most US and European credit spreads narrowed amid the risk-on environment. Foreign exchange trading in both the developed and emerging markets produced losses for the Fund. The US dollar experienced a wide-breadth selloff given the Fed’s dovish assurances and President Biden’s expansionary fiscal policy measures. While a long CAD position (versus short USD) further benefited from the Bank of Canada acting as the first G10 central bank to formally begin a monetary policy normalization process, it was more than offset by losses elsewhere in the FX portfolio. Interest rate positions contributed additional losses during the month. Long positioning on German 5- and 10-year notes suffered while short holdings on US Treasuries produced some partially offsetting gains as most global yields rose (prices fell) due to growing inflation concerns.
The Fund produced a gain in May with profits coming from commodity, foreign exchange, stock index, and credit holdings, while fixed income positions created some partially offsetting losses. Commodity holdings produced the best Fund gains during May. In the precious metals sub-sector, a long position on gold proved profitable amid a drumbeat of dovish commentary from FOMC officials who insisted that any inflationary pressures will be transitory which helped weaken the US dollar and sent gold futures higher by over 7% during the month. Other commodity sub-sectors that contributed to monthly gains included grains, energies, softs, and industrial metals. Foreign exchange trading in both the emerging and developed market currencies was profitable for the Fund. A long South African rand holding (against short USD) was the best performer in the EM space as the ZAR rose to its highest level in almost two years, helped along by strong demand for energies and metals. Long positioning on the Canadian dollar (against short USD) was also profitable on back of the bid in commodities as well as the Bank of Canada’s pivot to a more hawkish stance. The overall weaker greenback benefited other short USD holdings, adding to sector gains. Global stock indexes generated additional profits for the Fund. Long positioning on many global stock indexes profited as most major equity indexes advanced during the month. Economic reopening progress from the pandemic linked with ongoing monetary and fiscal stimulus created a risk-on backdrop for stocks. Credit trading was also profitable during May as short protection positions produced gains as most US and European credit spreads narrowed amid the risk-on environment. Interest rate positions created some partially offsetting losses during the month. Short positioning on some European and US instruments suffered as prices rose (yields fell) as multiple ECB and Federal Reserve officials pushed back against market expectations that both central banks were close to considering reducing quantitative easing measures.
The Fund was down slightly in June with profits coming from commodity, stock index, and credit holdings, while interest rate and foreign exchange positions created some partially offsetting losses for the Fund. Commodity holdings produced the best Fund profits during June. The dominant gains were found in long positioning on the petroleum and natural gas markets. WTI and Brent crude oil rallied amid improving demand dynamics linked with tighter supplies. Natural gas rose sharply on the back of a US heat wave that saw increased gas demand for electric generation for air conditioning. Global stock indexes generated additional gains for the Fund. Long positioning in the United States and Canada generated the best sector profits. Ongoing monetary and fiscal stimulus, accompanied by improving COVID vaccination rates and expanding economic reopening, provided a tailwind for equities. The US NASDAQ and S&P 500 indexes, along with the Canadian S&P/TSX index, printed new all-time highs during the month benefitting our long positioning. Credit trading was also profitable during June as short protection positions generated gains as US and European credit spreads narrowed amid the risk-on environment. Interest rate positions generated the largest partially offsetting losses during the month. Short positioning on the US 10-year note, US 30-year bond, and UK Gilts led sector losses as reassuring commentary from the FOMC and the Bank of England on the transitory nature of higher inflation sent long-term yields lower (prices higher). A long position on the policy-sensitive US 2-year note suffered when the FOMC turned surprisingly hawkish mid-month sending short-term yields higher (prices lower). Foreign exchange trading in the emerging market (EM) currencies was a drag on the Fund as well. Long EM currency positions (versus short the US dollar) suffered after the mid-month FOMC meeting. Chairman Powell surprised markets with an unexpected hawkish shift which sent the greenback sharply higher, hurting our US dollar shorts.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Introduction
Past Results Not Necessarily Indicative of Future Performance
The Fund is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or a substantial amount of the Fund’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Fund’s main line of business.
Market movements result in frequent changes in the fair value of the Fund’s open positions and, consequently, in its earnings and cash flow. The Fund’s market risk is influenced by a wide variety of factors, including the level and volatility of exchange rates, interest rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Fund’s open positions and the liquidity of the markets in which it trades.
The Fund rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Fund’s past performance is not necessarily indicative of its future results.
Standard of Materiality
Materiality as used in this section, “Quantitative and Qualitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage and multiplier features of the Fund’s market sensitive instruments.
Quantifying the Fund’s Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Fund’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact (such as the dollar amount of maintenance margin required for market risk sensitive instruments held at the end of the reporting period).
The Fund’s risk exposure in the various market sectors traded is estimated in terms of Value at Risk (VaR). The Fund estimates VaR using a model based upon historical simulation (with a confidence level of 97.5%) which involves constructing a distribution of hypothetical daily changes in the value of a trading portfolio. The VaR model takes into account linear exposures to risks, including equity and commodity prices, interest rates, foreign exchange rates, credit, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors to which the portfolio is sensitive. The Fund’s VaR at a one day 97.5% confidence level corresponds to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in 40 trading days or one day in 40. VaR typically does not represent the worst case outcome.
The Fund uses approximately one quarter of daily market data and revalues its portfolio for each of the historical market moves that occurred over this time period. This generates a probability distribution of daily “simulated profit and loss” outcomes. The VaR is the 2.5 percentile of this distribution.
The VaR for a sector represents the 2.5 percentile of outcomes for the aggregate exposures associated with that sector alone. The current methodology used to calculate the aggregate VaR represents the VaR of the Fund’s open positions across all market sectors, and is less than the sum of the VaRs for all such market sectors due to the diversification benefit across asset classes.
The Fund’s VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and does not distinguish between exchange and non-exchange dealer-based instruments. It is also not based on exchange and/or dealer-based maintenance margin requirements.
VaR models, including the Fund’s, are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by the Fund in its daily risk management activities. Please further note that VaR as described above may not be comparable to similarly titled measures used by other entities.
Because the business of the Fund is the speculative trading of futures, forwards, and swaps, the composition of the Fund’s trading portfolio can change significantly over any given time period, or even within a single trading day, which could positively or negatively materially impact market risk as measured by VaR.
The Fund’s Trading Value at Risk in Different Market Sectors
The following tables indicate the trading Value at Risk associated with the Fund’s open positions by market category as of June 30, 2022 and December 31, 2021 and the trading gains/losses by market category for the six months ended June 30, 2022 and the year ended December 31, 2021.
| | | June 30, 2022 | |
| Market Sector | | Value at Risk* | | | Trading Gain/(Loss)** | |
| Credit | | | 0.07 | % | | | 0.48 | % |
| Commodities | | | 0.62
| % | | | 12.77 | % |
| Foreign Exchange | | | 1.06 | % | | | 15.26 | % |
| Interest Rates | | | 0.78 | % | | | 10.87 | % |
| Equity Indices | | | 0.51 | % | | | 1.07 | % |
| Aggregate/Total | | | 1.64 | % | | | 40.45 | % |
| * | The VaR for a sector represents the 2.5 percentile of outcomes for the aggregate exposures associated with that sector alone. The aggregate VaR represents the VaR of the Fund’s open positions across all market sectors, and is less than the sum of the VaRs for all such market sectors due to the diversification benefit across asset classes. |
| ** | Of the 36.15% year to date return, approximately 40.45% was due to trading gains (before commissions) and approximately (0.07)% due to investment loss, offset by approximately (4.23)% due to brokerage fees, operating expenses and offering costs borne by the Fund. |
| | | December 31, 2021 | |
| Market Sector | | Value at Risk* | | | Trading Gain/(Loss)** | |
| Credit | | | 0.07 | % | | | (0.61 | )% |
| Commodities | | | 0.91 | % | | | 10.99 | % |
| Foreign Exchange | | | 0.90
| % | | | 8.09 | % |
| Interest Rates | | | 0.58 | % | | | (10.04 | )% |
| Equity Indices | | | 0.92 | % | | | 8.70 | % |
| Aggregate/Total | | | 2.09
| % | | | 17.12 | % |
| * | The VaR for a sector represents the 2.5 percentile of outcomes for the aggregate exposures associated with that sector alone. The aggregate VaR represents the VaR of the Fund’s open positions across all market sectors, and is less than the sum of the VaRs for all such market sectors due to the diversification benefit across asset classes. |
| ** | Of the 9.26% year to date return, approximately 17.12% was due to trading gains (before commissions) and approximately 0.08% due to investment income, offset by approximately (7.94)% due to brokerage fees, operating expenses and offering costs borne by the Fund. |
Material Limitations of Value at Risk as an Assessment of Market Risk
The following limitations of VaR as an assessment of market risk should be noted:
| 1) | Past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements; |
| 2) | Changes in portfolio value caused by market movements may differ from those of the VaR model; |
| 3) | VaR results reflect past trading positions while future risk depends on future positions; |
| 4) | VaR using a one day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and |
| 5) | The historical market risk factor data for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movements. |
VaR is not necessarily representative of historic risk nor should it be used to predict the Fund’s future financial performance or its ability to manage and monitor risk. There can be no assurance that the Fund’s actual losses on a particular day will not exceed the VaR amounts indicated or that such losses will not occur more than once in 40 trading days.
Non-Trading Risk
The Fund has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as the market risk they represent) are immaterial. The Fund also has non-trading market risk as a result of investing a portion of its available assets in U.S. Treasury Bills held at the broker and over-the-counter counterparty. The market risk represented by these investments is minimal. Finally, the Fund has non-trading market risk on fixed income securities held as part of its cash management program. The cash manager will use its best endeavors in the management of the assets of the Fund but provide no guarantee that any profit or interest will accrue to the Fund as a result of such management.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Fund’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund’s primary market risk exposures as well as the strategies used and to be used by Campbell & Company for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Fund. There can be no assurance that the Fund’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Fund.
The following were the primary trading risk exposures of the Fund as of June 30, 2022, by market sector.
Foreign Exchange
The Fund’s currency exposure is to foreign exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Fund trades in a large number of currencies, including cross-rates — i.e., positions between two currencies other than the U.S. Dollar. Campbell & Company does not anticipate that the risk profile of the Fund’s currency sector will change significantly in the future.
Interest Rates
Interest rate movements directly affect the price of the sovereign bond positions and interest rate swap contracts held by the Fund and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact the Fund’s profitability. Campbell & Company does not anticipate that the risk profile of the Fund’s interest rate sector will change significantly in the future.
Equity Indices
The Fund’s primary equity exposure is to equity price risk in the G-7 countries as well as Australia, Hong Kong, Singapore, Spain, Taiwan, Netherlands, India, South Africa and Sweden. The stock index futures traded by the Fund are by law limited to futures on broadly based indices. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Japanese indices. Markets that trade in a narrow range could result in the Fund’s positions being “whipsawed” into numerous small losses.
Credit
The Fund’s primary credit exposure is through fluctuations in the credit worthiness of a particular reference entity, basket of reference entities, or an index.
Energy
The Fund’s primary energy market exposure is to natural gas, crude oil and derivative product price movements, often resulting from international political developments and ongoing conflicts in the Middle East and the perceived outcome. Oil and gas prices can be volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.
Metals
The Fund’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, palladium, platinum, silver and zinc.
Agricultural
The Fund’s agricultural exposure is to the fluctuations of the price of cattle, cocoa, coffee, corn, cotton, hogs, soy, sugar, and wheat.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the non-trading risk exposures of the Fund as of June 30, 2022.
Foreign Currency Balances
The Fund’s primary foreign currency balances are in Australian Dollar, British Pound, Canadian Dollar, Euros, Hong Kong Dollar, Japanese Yen, Singapore Dollar, South African Rand and Swedish Krona. The Fund controls the non-trading risk of these balances by regularly converting these balances back into dollars (no less frequently than twice a month, and more frequently if a particular foreign currency balance becomes unusually large).
Fixed Income Securities and Short Term Investments
The Fund’s primary market exposure in instruments (other than treasury positions described in the subsequent section) held other than for trading is in its fixed income portfolio. The cash manager, PNC, has authority to make certain investments on behalf of the Fund. All securities purchased by the cash manager on behalf of the Fund will be held in the Fund’s custody account at the custodian. The cash manager will use its best endeavors in the management of the assets of the Fund but provide no guarantee that any profit or interest will accrue to the Fund as a result of such management.
U.S. Treasury Bill Positions for Margin Purposes
The Fund also has market exposure in its U.S. Treasury Bill portfolio. The Fund holds U.S. Treasury Bills with maturities no longer than six months. Violent fluctuations in prevailing interest rates could cause minimal mark-to-market losses on the Fund’s U.S. Treasury Bills, although substantially all of these short-term investments are held to maturity.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Fund and Campbell & Company, severally, attempt to manage the risk of the Fund’s open positions is essentially the same in all market categories traded. Campbell & Company applies risk management policies to its trading which generally limit the total exposure that may be taken per “risk unit” of assets under management. In addition, Campbell & Company follows diversification guidelines (often formulated in terms of the balanced volatility between markets and correlated groups), as well as reducing position sizes dynamically in response to trading losses.
General
The Fund is unaware of any (i) anticipated known demands, commitments or capital expenditures; (ii) material trends, favorable or unfavorable, in its capital resources; or (iii) trends or uncertainties that will have a material effect on operations. From time to time, certain regulatory agencies have proposed increased margin requirements on futures contracts. Because the Fund generally will use a small percentage of assets as margin, the Fund does not believe that any increase in margin requirements, as proposed, will have a material effect on the Fund’s operations.
The Fund has continued to operate as normal during the COVID-19 pandemic. The Fund had access to and the ability to trade in approved markets. There were no disruptions in the Fund’s accounting processes, transfer agent processes or cash processes, including the ability to pay redemptions and meet margin requirements.
Item 4. Controls and Procedures.
Campbell & Company, the general partner of the Fund, with the participation of the general partner’s chief executive officer and chief operating officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Fund as of the end of the period covered by this annual report. Based on their evaluation, the chief executive officer and chief operating officer have concluded that these disclosure controls and procedures are effective. There were no changes in the general partner’s internal control over financial reporting applicable to the Fund identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the last fiscal quarter that have materially affected, or is reasonably likely to materially affect, internal control over financial reporting applicable to the Fund.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
None
There are no material changes from the risk factors as previously disclosed in Form 10-K, filed March 25, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
| Exhibit Number | | Description of Document |
| | | |
| 3.01 | | |
| | | |
| 3.02 | | |
| | | |
| 4.01 | | |
| | | |
| 10.01 | | |
| | | |
| 10.02 | | |
| | | |
| 10.03 | | |
| | | |
| | Certification of Kevin D. Cole, Chief Executive Officer & Chief Investment Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
| | | |
| | Certification of John R. Radle, Chief Operating Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
| | | |
| | Certification of Kevin D. Cole, Chief Executive Officer & Chief Investment Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. |
| | | |
| | Certification of John R. Radle, Chief Operating Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. |
| | | |
| 101 | | Interactive data file pursuant to Rule 405 of Regulation S-T: (i) Condensed Schedules of Investments As of June 30, 2022 and December 31, 2021, (ii) Statements of Financial Condition As of June 30, 2022 and December 31, 2021, (iii) Statements of Operations For the Three Months and Six Months Ended June 30, 2022 and 2021, (iv) Statements of Cash Flows For the Six Months Ended June 30, 2022 and 2021, (v) Statements of Changes in Unitholders’ Capital (Net Asset Value) For the Three Months and Six Months Ended June 30, 2022 and 2021, (vi) Financial Highlights For the Three Months and Six Months Ended June 30, 2022 and 2021, (vii) Notes to Financial Statements.
|
| | | |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| (1) | Incorporated by reference to the respective exhibit to the Registrant’s Registration Statement on Form S-1 on April 27, 2010. |
| (2) | Incorporated by reference to the respective exhibit to Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 on April 7, 2011. |
| (3) | Incorporated by reference to the respective exhibit to the Quarterly Report on Form 10-Q on November 14, 2017. |
| (4) | Incorporated by reference to the respective exhibit to the Quarterly Report on Form 10-Q on May 15, 2014. |
EXHIBIT INDEX
| | Certification of Kevin D. Cole, Chief Executive Officer & Chief Investment Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
| | | |
| | Certification of John R. Radle, Chief Operating Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. |
| | | |
| | Certification of Kevin D. Cole, Chief Executive Officer & Chief Investment Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. |
| | | |
| | Certification of John R. Radle, Chief Operating Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. |
| | | |
| 101.01 | | Interactive data file pursuant to Rule 405 of Regulation S-T: (i) Condensed Schedules of Investments As of June 30, 2022 and December 31, 2021, (ii) Statements of Financial Condition As of June 30, 2022 and December 31, 2021, (iii) Statements of Operations For the Three Months and Six Months Ended June 30, 2022 and 2021, (iv) Statements of Cash Flows For the Six Months Ended June 30, 2022 and 2021, (v) Statements of Changes in Unitholders’ Capital (Net Asset Value) For the Three Months and Six Months Ended June 30, 2022 and 2021, (vi) Financial Highlights For the Three Months and Six Months Ended June 30, 2022 and 2021, (vii) Notes to Financial Statements. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | CAMPBELL STRATEGIC ALLOCATION FUND, L.P. (Registrant) |
| | | | |
| | By: | Campbell & Company, LP | |
| | | General Partner | |
| | | |
| Date: August 12, 2022 | By: | /s/ Kevin D. Cole | |
| | | Kevin D. Cole | |
| | | Chief Executive Officer & Chief Investment Officer | |
