Managed Futures ETFs Are Having A Good Year So Far

There have been few places to hide from this year’s dramatic crash in stock markets around the world. Cash, US Treasuries and a select group of government bonds in foreign markets have been a rare source of safety. For funds that held risk assets, managed futures strategies have also been an island of calm, at least for some portfolios, including several of the largest ETFs in this niche.

Consider the largest-five managed futures ETFs, based on assets, according to Four of the five funds have delivered relative stability vs. the US stock market, as represented by the SPDR S&P 500 ETF (SPY). A fifth managed futures fund has been a weak performer vs. the rest of the field, although year to date it’s managed to beat SPY, albeit only modestly.

For investors well-versed in the details of managed futures strategies, the results will ring familiar. Advocates of this corner of portfolio management have long promoted the strategies’ capacity for delivering ballast to the beta risk of stocks. Andreas Clenow offers a compelling history in Following the Trend: Diversified Managed Futures Trading, which documents the strong performances in these portfolios since the 1970s, in absolute and relative terms.

For many years these strategies were available only to high-net-worth investors through private partnerships. More recently, publicly traded versions have become available, in both open-end mutual funds and ETFs formats.

Critics point to high fees and aggressive trading as reasons to be wary. But as recent results remind, managed futures can also provide valuable diversification benefits. What’s the source of the diversification? Several factors, including a mix of long and short positions across a range of financial, currency and commodity futures.

As Clenow explains, the common trading theme for most managed futures strategies is the use of trend following rules. Depending on your perspective, that’s either a plus or minus. Skeptics are quick to point out that trend following-based strategies generally have faced a challenging period in recent years, in part because plain-vanilla equity portfolios have delivered stiff competition.

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