Key Takeaways
- • Four of the five largest managed futures ETFs delivered relative stability compared to the S&P 500 in early 2020, demonstrating the asset class's defensive characteristics during market volatility.
- • Managed futures strategies employ trend-following rules combined with long and short positions across financial, currency, and commodity futures to provide portfolio diversification benefits.
- • The asset class has historically delivered strong absolute and relative performance since the 1970s, though critics cite high fees and aggressive trading as drawbacks.
- • Managed futures ETFs have democratized access to strategies previously available only to high-net-worth investors through private partnerships, now offered in both mutual fund and ETF formats.
Summary
Managed futures ETFs emerged as a source of portfolio stability during the sharp equity market decline of early 2020, with four of the five largest funds in the category outperforming the broad U.S. stock market. While few assets provided meaningful downside protection during the market crash, cash, U.S. Treasuries, select foreign government bonds, and managed futures strategies ranked among the rare refuges for portfolio risk.
The relative outperformance of managed futures ETFs reflects the core thesis underlying these strategies: the capacity to deliver ballast against equity beta risk. The diversification benefits stem from several structural features, including a mix of long and short positions across financial, currency, and commodity futures. The predominant trading approach employed by most managed futures managers involves trend-following rules, which aim to capitalize on directional market moves while maintaining exposure to multiple asset classes.
Historically, managed futures strategies have demonstrated compelling performance. According to trend-following expert Andreas Clenow, these portfolios have delivered strong results in both absolute and relative terms since the 1970s. However, the strategies have faced skepticism from certain quarters of the investment community, with critics pointing to elevated fee structures and aggressive trading frequencies as concerns.
The emergence of publicly-traded managed futures funds represents a significant shift in investor access. For decades, these strategies were confined to high-net-worth investors participating in private partnerships. The introduction of open-end mutual funds and ETFs in managed futures has broadened the investor base, allowing retail and institutional allocators to incorporate trend-following diversification into portfolio construction without the traditional constraints of high minimum investments or limited liquidity.
The relative outperformance of managed futures ETFs reflects the core thesis underlying these strategies: the capacity to deliver ballast against equity beta risk. The diversification benefits stem from several structural features, including a mix of long and short positions across financial, currency, and commodity futures. The predominant trading approach employed by most managed futures managers involves trend-following rules, which aim to capitalize on directional market moves while maintaining exposure to multiple asset classes.
Historically, managed futures strategies have demonstrated compelling performance. According to trend-following expert Andreas Clenow, these portfolios have delivered strong results in both absolute and relative terms since the 1970s. However, the strategies have faced skepticism from certain quarters of the investment community, with critics pointing to elevated fee structures and aggressive trading frequencies as concerns.
The emergence of publicly-traded managed futures funds represents a significant shift in investor access. For decades, these strategies were confined to high-net-worth investors participating in private partnerships. The introduction of open-end mutual funds and ETFs in managed futures has broadened the investor base, allowing retail and institutional allocators to incorporate trend-following diversification into portfolio construction without the traditional constraints of high minimum investments or limited liquidity.
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