Key Takeaways
- • Thor Financial Technologies' Brad Roth and Mount Lucas Management's Jerry Prior discussed the strategic benefits of managed futures strategies, emphasizing applications beyond crisis hedging, including alpha generation from liquidity opportunities and portfolio diversification.
- • Mount Lucas has maintained a strict no-equities mandate since 1988, positioning its managed futures strategy to capture systematic risk premiums from futures markets across commodities, energy, agriculture, and metals while avoiding equity exposure.
- • The KraneShares Mount Lucas Managed Futures Index Strategy ETF (KMLM), launched in 2020, provides institutional investors access to Mount Lucas's 40-year-old MLM Index, which was designed to systematically own price risk across operational hedging markets in exchange for a risk premium.
- • Managed futures strategies generate returns by trading futures contracts globally—often hundreds of contracts simultaneously—offering uncorrelated portfolio exposure with adaptive long/short positioning across multiple asset classes.
- • Mount Lucas's flagship managed futures fund delivered 36% returns in 2022, demonstrating the strategy's performance potential during periods of equity and credit market stress through its counter-cyclical positioning in commodities and macro markets.
Summary
Brad Roth, Chief Investment Officer of Thor Financial Technologies, engaged in a substantive discussion with Jerry Prior, Chief Investment Officer of Managed Futures Strategies and Chief Operating Officer of Mount Lucas Management, regarding the strategic benefits and market positioning of managed futures as an asset class. The conversation, aired on ETF.com's "Behind the Ticker" podcast series, centered on the KraneShares Mount Lucas Managed Futures Index Strategy ETF (KMLM) and challenged conventional narratives about managed futures' utility in modern portfolios.
Mount Lucas Management, which was spun out from Commodities Corp in 1986, has operated continuously in managed futures and global macro strategies for nearly four decades. The firm's foundational philosophy reflects a fundamental insight into market structure: while equity and credit markets exist primarily to fund business capital structures, futures markets serve a distinctly different economic purpose. Jerry Prior emphasized that futures markets enable operational businesses—from corn farmers managing harvest price risk to multinational corporations hedging currency and commodity exposure—to transfer real economic risks. Mount Lucas and the broader managed futures industry systematically sit on the opposite side of these risk transfers, owning price risk systematically over time in exchange for a risk premium. This positioning is encapsulated in the MLM Index, constructed in 1988 and remaining largely unchanged over four decades.
A defining characteristic of Mount Lucas's approach is its strict exclusion of equity positions from its managed futures strategy, a discipline maintained since 1988. This no-equities mandate creates a distinctly uncorrelated portfolio exposure relative to traditional stock and bond allocations. During 2022, Mount Lucas's managed futures fund delivered 36% returns while equities and credit markets experienced significant drawdowns, illustrating the strategy's defensive and crisis-alpha characteristics. The strategy trades across a globally diversified set of futures markets, including the broader energy complex, agricultural commodities, metals, and interest rate instruments.
The KMLM ETF, introduced in 2020, brought Mount Lucas's institutional managed futures strategy into an exchange-traded wrapper, democratizing access to the firm's systematic approach. The discussion between Roth and Prior emphasized that managed futures strategies offer value beyond conventional crisis hedging, with specific focus on alpha opportunities stemming from liquidity provision and portfolio risk mitigation through adaptive long/short positioning across hundreds of global futures contracts simultaneously. These strategies function as true alternative investments, providing portfolio diversification through weak or inverse correlation with traditional asset classes while reducing overall portfolio volatility when integrated into broader institutional allocations.
Mount Lucas Management, which was spun out from Commodities Corp in 1986, has operated continuously in managed futures and global macro strategies for nearly four decades. The firm's foundational philosophy reflects a fundamental insight into market structure: while equity and credit markets exist primarily to fund business capital structures, futures markets serve a distinctly different economic purpose. Jerry Prior emphasized that futures markets enable operational businesses—from corn farmers managing harvest price risk to multinational corporations hedging currency and commodity exposure—to transfer real economic risks. Mount Lucas and the broader managed futures industry systematically sit on the opposite side of these risk transfers, owning price risk systematically over time in exchange for a risk premium. This positioning is encapsulated in the MLM Index, constructed in 1988 and remaining largely unchanged over four decades.
A defining characteristic of Mount Lucas's approach is its strict exclusion of equity positions from its managed futures strategy, a discipline maintained since 1988. This no-equities mandate creates a distinctly uncorrelated portfolio exposure relative to traditional stock and bond allocations. During 2022, Mount Lucas's managed futures fund delivered 36% returns while equities and credit markets experienced significant drawdowns, illustrating the strategy's defensive and crisis-alpha characteristics. The strategy trades across a globally diversified set of futures markets, including the broader energy complex, agricultural commodities, metals, and interest rate instruments.
The KMLM ETF, introduced in 2020, brought Mount Lucas's institutional managed futures strategy into an exchange-traded wrapper, democratizing access to the firm's systematic approach. The discussion between Roth and Prior emphasized that managed futures strategies offer value beyond conventional crisis hedging, with specific focus on alpha opportunities stemming from liquidity provision and portfolio risk mitigation through adaptive long/short positioning across hundreds of global futures contracts simultaneously. These strategies function as true alternative investments, providing portfolio diversification through weak or inverse correlation with traditional asset classes while reducing overall portfolio volatility when integrated into broader institutional allocations.
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