Advisors and investors continue to demonstrate clear preference for one managed futures ETF this year when many funds underperform. The KFA Mount Lucas Index Strategy ETF (KMLM) remains a favorite within the category, both in the last four weeks and year-to-date.
After the stellar outperformance of managed futures strategies last year, this year’s performance remains fairly muted. The collapse of U.S. regional banks in March and subsequent reversal of the inflation trade sent many strategies plummeting.
See also: “What Bank Volatility and Bond Reversal Mean for KMLM”
KMLM remains afloat in a challenging year, and investors continue to take note. The fund brought in net $3 million in flows in the last week and $17 million net in the last four weeks. KMLM is up $26 million net flows YTD and is the only managed futures ETF with net inflows this year, according to FactSet data on etfdb.com.
Diversification Buoys This Managed Futures ETF
The KFA Mount Lucas Index Strategy ETF (KMLM) from KFAFunds, a KraneShares company, invests in futures contracts in commodities, currencies, and global bond markets. Its diversified exposures across a number of futures have helped keep the fund afloat when many other managed futures strategies fell.
KMLM’s benchmark is the KFA MLM Index. The index uses a trend-following methodology and is a modified version of the MLM Index. The index weights the three different futures contract types by their relative historical volatility. Within each type of futures contract, the underlying markets are equal dollar-weighted.
The index and KMLM have demonstrated a negative correlation to both equities and bonds in bull and bear markets. Investing in managed futures offers diversification for portfolios by their ability to invest long and short on asset classes. Carrying them within a portfolio can potentially help mitigate losses during market volatility and sinking prices.
KMLM continues to ride the tide of changing market sentiment and is up 0.92% YTD when many funds within the category are down. The fund crossed above its 50-day simple moving average (SMA) mid-April and has remained above it since. KMLM remains below its 200-day SMA YTD.
Futures contracts in the index include 11 commodities, six currencies, and five global bond markets. These are rolled forward on a market-by-market basis as they near expiration.
Currently, the fund is long on gold, copper, the euro, Japanese bonds, and other assets. Noteworthy short positions include gasoline, natural gas, the yen, European bonds, and the U.S. 10-year Treasury Note.
The index evaluates the trading signals of markets every day and rebalances on the first day of each month. It invests in securities with maturities of up to 12 months and expects to invest in ETFs to gain exposure to debt instruments.
KMLM carries an expense ratio of 0.92%.
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