| TRADING ACTIVITIES AND RELATED RISKS | Note 12. TRADING ACTIVITIES AND RELATED RISKS The Trust engages in the speculative trading of U.S. and foreign futures contracts, forward currency contracts and centrally cleared swap contracts (collectively, “derivatives”). Specifically, the Trust trades a portfolio focused on futures, forward, credit default swap and interest rate swap contracts, which are instruments designed to hedge changes in interest rates, currency exchange rates, stock index values, metals, energy, agriculture values, and credit risks. The Trust is exposed to both market risk, the risk arising from changes in the fair value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. In July 2020, the Trust began trading centrally cleared swap contracts. Market Risk For derivatives, risks arise from changes in the fair value of the contracts. Market movements result in frequent changes in the fair value of the Trust’s open positions and, consequently, in its earnings and cash flow. The Trust’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 fair value of financial instruments and contracts, the diversification effects among the Trust’s open positions and the liquidity of the markets in which it trades. Theoretically, the Trust is exposed to a market risk equal to the notional contract value of futures and forward currency contracts purchased and unlimited liability on such contracts sold short. The value of an interest rate swap will change as market interest rates rise and fall in conjunction with whether the contract is to receive or pay a fixed interest rate. As a purchaser of credit default swaps, the Trust’s risk of loss is limited to any cash payments required under the swap contracts. Written credit default contracts (i.e., sell protection) expose the Trust to a market risk equal to the notional value of such swap contracts and any cash payments required under the swap contracts. See Note 1.C. for an explanation of how the Trust determines its valuation for derivatives as well as the netting of derivatives. The Trust adopted the provisions of ASC 815, Derivatives and Hedging, (“ASC 815”). ASC 815 provides enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments are accounted for, and how derivative instruments affect an entity’s financial position, financial performance and cash flows. The following tables summarize quantitative information required by ASC 815. The fair value of the Trust’s derivatives by instrument type, as well as the location of those instruments on the Statements of Financial Condition, as of September 30, 2020 and December 31, 2019 is as follows: Type of Instrument * Statements of Financial Condition Location Asset Derivatives at September 30, 2020 Fair Value Liability Derivatives at September 30, 2020 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 1,585,973 $ (355,267 ) $ 1,230,706 Energy Contracts Net unrealized gain (loss) on open futures contracts 1,784,870 (101,555 ) 1,683,315 Metal Contracts Net unrealized gain (loss) on open futures contracts 4,076,724 (3,059,831 ) 1,016,893 Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 802,296 (1,460,875 ) (658,579 ) Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 176,731 (34,877 ) 141,854 Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,621,221 (555,827 ) 1,065,394 Forward Currency Contracts Net unrealized gain (loss) on open Forward Currency Contracts 13,975,697 (15,395,486 ) (1,419,789 ) Credit Default Index Swap Contracts Credit default index swaps 1,576,178 (747,632 ) 828,546 Interest Rate Swap Contracts Interest rate swaps 1,078,458 (170,290 ) 908,168 Totals $ 26,678,148 $ (21,881,640 ) $ 4,796,508 * Derivatives not designated as hedging instruments under ASC 815 Type of Instrument * Statements of Financial Condition Location Asset Derivatives at December 31, 2019 Fair Value Liability Derivatives at December 31, 2019 Fair Value Net Agriculture Contracts Net unrealized gain (loss) on open futures contracts $ 193,039 $ (2,931,321 ) $ (2,738,282 ) Energy Contracts Net unrealized gain (loss) on open futures contracts 1,761,936 (275,743 ) 1,486,193 Metal Contracts Net unrealized gain (loss) on open futures contracts 5,593,742 (8,006,981 ) (2,413,239 ) Stock Indices Contracts Net unrealized gain (loss) on open futures contracts 1,340,862 (1,169,714 ) 171,148 Short-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 314,422 (1,080,128 ) (765,706 ) Long-Term Interest Rate Contracts Net unrealized gain (loss) on open futures contracts 1,421,030 (5,301,081 ) (3,880,051 ) Forward Currency Contracts Net unrealized gain (loss) on open Forward Currency Contracts 23,303,459 (25,967,136 ) (2,663,677 ) Totals $ 33,928,490 $ (44,732,104 ) $ (10,803,614 ) * Derivatives not designated as hedging instruments under ASC 815 The trading gains and losses of the Trust’s derivatives by instrument type, as well as the location of those gains and losses on the Statements of Operations, for the three months and nine months ended September 30, 2020 and 2019 is as follows: Type of Instrument Trading Gains/(Losses) for the Three Months Ended September 30, 2020 Trading Gains/(Losses) for the Three Months Ended September 30, 2019 Agriculture Contracts $ (6,064,325 ) $ 3,759,594 Energy Contracts (2,844,671 ) (3,398,818 ) Metal Contracts 7,813,156 736,004 Stock Indices Contracts (7,291,044 ) 5,330,232 Short-Term Interest Rate Contracts (55,287 ) (205,802 ) Long-Term Interest Rate Contracts (2,769,114 ) 13,833,873 Forward Currency Contracts (4,568,196 ) 4,867,544 Credit default index swap contracts 142,020 0 Interest rate swap contracts 566,176 0 Total $ (15,071,285 ) $ 24,922,627 Type of Instrument Trading Gains/(Losses) for the Nine Months Ended September 30, 2020 Trading Gains/(Losses) for the Nine Months Ended September 30, 2019 Agriculture Contracts $ (5,761,777 ) $ (507,740 ) Energy Contracts 5,543,929 (7,016,118 ) Metal Contracts 14,711,177 (3,915,875 ) Stock Indices Contracts (51,620,545 ) 23,044,135 Short-Term Interest Rate Contracts 16,033,843 15,598,416 Long-Term Interest Rate Contracts 1,932,113 35,625,445 Forward Currency Contracts 7,160,482 (1,769,489 ) Credit default index swap contracts 142,020 0 Interest rate swap contracts 566,176 0 Total $ (11,292,582 ) $ 61,058,774 Line Item in the Statements of Operations Trading Gains/(Losses) for the Three Months Ended September 30, 2020 Trading Gains/(Losses) for the Three Months Ended September 30, 2019 Futures trading gains (losses): Realized** $ (14,195,388 ) $ 30,127,764 Change in unrealized 2,984,104 (10,072,681 ) Forward currency trading gains (losses): Realized** (6,854,797 ) (573,244 ) Change in unrealized 2,286,601 5,440,788 Swap trading gains (losses): Realized 525,424 0 Change in unrealized 182,771 0 Total $ (15,071,285 ) $ 24,922,627 Line Item in the Statements of Operations Trading Gains/(Losses) for the Nine Months Ended September 30, 2020 Trading Gains/(Losses) for the Nine Months Ended September 30, 2019 Futures trading gains (losses): Realized*** $ (31,780,779 ) $ 68,472,848 Change in unrealized 12,619,520 (5,644,585 ) Forward currency trading gains (losses): Realized*** 5,916,594 3,800,316 Change in unrealized 1,243,888 (5,569,805 ) Swap trading gains (losses): Realized 525,424 0 Change in unrealized 182,771 0 Total $ (11,292,582 ) $ 61,058,774 ** For the three months ended September 30, 2020 and 2019, the amounts above include gains/(losses) on foreign currency cash balances at the futures brokers of $11,066 and $(103,622), respectively, and gains/(losses) on spot trades in connection with forward currency trading at the interbank market maker of $1,167,357 and $978,763, respectively. *** For the nine months ended September 30, 2020 and 2019, the amounts above include gains/(losses) on foreign currency cash balances at the futures brokers of $207,379 and $157,695, respectively, and gains/(losses) on spot trades in connection with forward currency trading at the interbank market maker of $(344,129) and $1,052,646, respectively. For the three months ended September 30, 2020 and 2019, the monthly average of futures contracts bought and sold was approximately 59,400 and 46,000, respectively; the monthly average of notional value of centrally cleared swap contracts was approximately $534,400,000 and $0, respectively; and the monthly average of notional value of forward currency contracts was $2,471,300,000 and $2,868,800,000, respectively. For the nine months ended September 30, 2020 and 2019, the monthly average of futures contracts bought and sold was approximately 52,400 and 49,200, respectively; the monthly average of notional value of centrally cleared swap contracts was approximately $534,400,000 and $0, respectively; and the monthly average of notional value of forward currency contracts was $2,237,700,000 and $3,327,500,000, respectively. Open contracts generally mature within three months; as of September 30, 2020, the latest maturity date for open futures contracts is December 2021 and the latest maturity date for open forward currency contracts is December 2020. However, the Trust intends to close all futures and offset all forward currency contracts prior to maturity. The latest termination date for centrally cleared swap contracts is December 2025. Credit Risk The Trust trades futures contracts on exchanges that require margin deposits with the futures brokers and centrally cleared swap contracts that require margin deposits with the swaps broker. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a futures broker or swaps broker to segregate all customer transactions and assets from such futures broker’s or swaps broker’s proprietary activities. A customer’s cash and other property (for example, U.S. Treasury Bills) deposited with a futures broker or swaps broker are considered commingled with all other customer funds subject to the futures broker’s or swaps broker’s segregation requirements. In the event of a futures broker’s or swaps broker’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. The Trust trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty nonperformance. Accordingly, the risks associated with forward currency contracts are generally greater than those associated with exchange traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward currency contracts typically involves delayed cash settlement. The Trust has a portion of its assets on deposit with PNC Bank. In the event of a financial institution’s insolvency, recovery of the Trust’s assets on deposit may be limited to account insurance or other protection afforded such deposits. The Trust has entered into ISDA Agreements with NatWest. Under the terms of the ISDA Agreement, upon the designation of an Event of Default, as defined in the ISDA Agreement, the non-defaulting party may set-off any sum or obligation owed by the defaulting party to the non-defaulting party against any sum or obligation owed by the non-defaulting party to the defaulting party. If any sum or obligation is unascertained, the non-defaulting party may in good faith estimate that sum or obligation and set-off in respect to that estimate, accounting to the other party when such sum or obligation is ascertained. Under the terms of each master netting agreement with UBS Securities and Goldman, upon occurrence of a default by the Trust, as defined in respective account documents, UBS Securities and Goldman have the right to close out any or all open contracts held in the Trust’s account; sell any or all of the securities held; and borrow or buy any securities, contracts or other property for the Trust’s account. The Trust would be liable for any deficiency in its account resulting from such transactions. The amount of required margin and good faith deposits with the futures brokers, swaps broker, and interbank market maker usually range from 10% to 30% of Net Asset Value. The fair value of securities held to satisfy such requirements at September 30, 2020 and December 31, 2019 was $43,871,907 and $53,641,527, respectively, which equals approximately 16% and 17% of Net Asset Value, respectively. Included in cash deposits with the futures brokers, swaps broker and interbank market maker at September 30, 2020 and December 31, 2019 was restricted cash for margin requirements of $33,325,910 and $34,464,229, respectively, which equals approximately 12% and 11% of Net Asset Value, respectively. Set forth below are tables which disclose both gross information and net information about instruments and transactions eligible for offset in the Statements of Financial Condition and instruments and transactions that are subject to a master netting agreement as well as amounts related to financial collateral (including U.S. Treasury Bills and cash collateral) held at clearing brokers and counterparties. Margin reflected in the collateral tables is limited to the net amount of unrealized loss at each counterparty. Actual margin amounts required at each counterparty are based on the notional amounts or the number of contracts outstanding and may exceed the margin presented in the collateral tables. Offsetting of Derivative Assets by Counterparty As of September 30, 2020 Type of Instrument Counterparty Gross Amounts of Recognized Assets Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Gain Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 5,132,933 $ (2,866,258 ) $ 2,266,675 Futures contracts Goldman Sachs & Co. 4,914,882 (2,701,974 ) 2,212,908 Forward currency contracts NatWest Markets Plc 13,975,697 (13,975,697 ) 0 Centrally cleared swap contracts Centrally Cleared 2,654,636 (917,922 ) 1,736,714 Total derivatives $ 26,678,148 $ (20,461,851 ) $ 6,216,297 Derivative Assets and Collateral Received by Counterparty As of September 30, 2020 Net Amounts of Unrealized Gain Gross Amounts Not Offset in the Statements of Financial Condition Counterparty in the Statements of Financial Condition Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 2,266,675 $ 0 $ 0 $ 2,266,675 Goldman Sachs & Co. 2,212,908 0 0 2,212,908 NatWest Markets Plc 0 0 0 0 Centrally Cleared 1,736,714 0 0 1,736,714 Total $ 6,216,297 $ 0 $ 0 $ 6,216,297 Offsetting of Derivative Liabilities by Counterparty As of September 30, 2020 Type of Instrument Counterparty Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Loss Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 2,866,258 $ (2,866,258 ) $ 0 Futures contracts Goldman Sachs & Co. 2,701,974 (2,701,974 ) 0 Forward currency contracts NatWest Markets Plc 15,395,486 (13,975,697 ) 1,419,789 Centrally cleared swap contracts Centrally Cleared 917,922 (917,922 ) 0 Total derivatives $ 21,881,640 $ (20,461,851 ) $ 1,419,789 Derivative Liabilities and Collateral Pledged by Counterparty As of September 30, 2020 Net Amounts of Unrealized loss Gross Amounts Not Offset in the Statements of Financial Condition Counterparty in the Statements of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs & Co. 0 0 0 0 NatWest Markets Plc 1,419,789 0 (1,419,789 ) 0 Centrally Cleared 0 0 0 0 Total $ 1,419,789 $ 0 $ (1,419,789 ) $ 0 Offsetting of Derivative Assets by Counterparty As of December 31, 2019 Type of Instrument Counterparty Gross Amounts of Recognized Assets Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Gain Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 5,396,065 $ (5,396,065 ) $ 0 Futures contracts Goldman Sachs & Co. 5,228,966 (5,228,966 ) 0 Forward currency contracts NatWest Markets Plc 23,303,459 (23,303,459 ) 0 Total derivatives $ 33,928,490 $ (33,928,490 ) $ 0 Derivative Assets and Collateral Received by Counterparty As of December 31, 2019 Net Amounts of Unrealized Gain Gross Amounts Not Offset in the Statements of Financial Condition Counterparty in the Statements of Financial Condition Financial Instruments Cash Collateral Received Net Amount UBS Securities LLC $ 0 $ 0 $ 0 $ 0 Goldman Sachs & Co. 0 0 0 0 NatWest Markets Plc 0 0 0 0 Total $ 0 $ 0 $ 0 $ 0 Offsetting of Derivative Liabilities by Counterparty As of December 31, 2019 Type of Instrument Counterparty Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statements of Financial Condition Net Amounts of Unrealized Loss Presented in the Statements of Financial Condition Futures contracts UBS Securities LLC $ 9,348,737 $ (5,396,065 ) $ 3,952,672 Futures contracts Goldman Sachs & Co. 9,416,231 (5,228,966 ) 4,187,265 Forward currency contracts NatWest Markets Plc 25,967,136 (23,303,459 ) 2,663,677 Total derivatives $ 44,732,104 $ (33,928,490 ) $ 10,803,614 Derivative Liabilities and Collateral Pledged by Counterparty As of December 31, 2019 Net Amounts of Unrealized loss Gross Amounts Not Offset in the Statements of Financial Condition Counterparty in the Statements of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount UBS Securities LLC $ 3,952,672 $ 0 $ (3,952,672 ) $ 0 Goldman Sachs & Co. 4,187,265 0 (4,187,265 ) 0 NatWest Markets Plc 2,663,677 0 (2,663,677 ) 0 Total $ 10,803,614 $ 0 $ (10,803,614 ) $ 0 Campbell & Company has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. Campbell & Company’s basic market risk control procedures consist of continuously monitoring open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 30%. Campbell & Company’s attempt to manage the risk of the Trust’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. Campbell & Company controls the risk of the Trust’s non-trading fixed income instruments by limiting the duration of such instruments and requiring a minimum credit quality of the issuers of those instruments. Campbell & Company seeks to minimize credit risk primarily by depositing and maintaining the Trust’s assets at financial institutions and brokers which Campbell & Company believes to be credit worthy. The unitholder bears the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received. |
