NESTOR PARTNERS Annual Report - How They Did This Year

I’ve put together this guide to help you understand how Nestor Partners performed this year. My goal is to cut through the corporate jargon so you can decide if this company fits your portfolio.

1. What does this company do?

Nestor Partners acts as a professionally managed fund that pools money to trade futures, options, and forward contracts. They trade in over 100 markets, including gold, oil, corn, and major currencies. Since 1977, the fund has used automated, trend-following computer models to identify and profit from price momentum.

2. How do they make money (and how do they charge you)?

The fund makes money when its trades increase in value. However, the fee structure significantly impacts your final returns:

• Management Fees: You pay an annual fee between 1.75% and 4.5% of your account value, depending on your share class and investment size.
• Profit Share: The manager keeps 20% of the new profits earned each year. They only collect this if the fund’s value hits a new record high.
• Upfront Costs: You may pay a one-time commission of up to 2% to your broker or advisor.
• Operating Expenses: You also pay for trading commissions—typically $5 to $15 per trade—and administrative costs, which totaled $450,000 last year.

3. Financial health and safety

The fund keeps a conservative cash balance to ensure it can handle withdrawal requests:

• Diversification: By trading in over 100 markets, they limit exposure to any single sector to less than 10% of total assets.
• Margin Limits: They only use 5% to 35% of assets as margin. This keeps 65% to 95% of the fund in cash or safe equivalents.
• No Pyramiding: They forbid using "paper profits" from open trades to increase the size of those same positions.
• Safety Net: About 90% of the fund’s assets sit in U.S. Treasury bills. This earns interest on idle cash and keeps most investor money out of the volatile futures market.

4. Major risks: What could hurt your investment?

This is a speculative investment. Three main risks stand out:

• Model Failure: The fund relies on past patterns. If markets behave unpredictably, the algorithms may fail, leading to quick losses.
• Regulatory Changes: Compliance costs rise by about 12% each year due to new government reporting rules. These costs lower your net returns.
• Human Judgment: While trading is 95% automated, managers can override the system. In the last three years, these manual interventions lowered annual performance by 1.2%.

5. Future outlook

The fund is investing $2.5 million into machine learning to improve its trading models and reduce losses during sideways market movement. Additionally, they are allocating $800,000 to upgrade cybersecurity measures to protect trade data.

6. The Bottom Line

A $1,000 investment in 1977 would be worth over $60,000 today, growing at about 9.5% per year before fees. However, this path is bumpy; the fund has seen value drops of up to 25%. You lack the legal protections of a standard mutual fund, and the high fees mean the fund must perform exceptionally well just to give you a competitive return.

Decision Checklist:

• Are you comfortable with volatility? The 25% historical drawdowns mean this is not a "set it and forget it" investment.
• Can you absorb the fees? With management fees up to 4.5% plus a 20% profit share, the fund needs to outperform significantly just to break even for you.
• Does this fit your timeline? This is a long-term play, as the fund's strategy relies on capturing trends that may take time to develop.