What Are Managed Futures and Why Hold Them?

Managed futures are baskets of futures contracts comprised of contracts on assets including U.S. Treasuries, foreign currencies, commodities, and equity indices such as the S&P 500 and the Russell 2000 Index.

Previously, managed futures were the territory of institutional investors and hedge funds. Ordinary investors, and usually those with means, had to go through a commodity trading advisor (CTA) to access this asset class. Today, managed futures are available to a broader audience thanks to the WisdomTree Managed Futures Strategy (WTMF).

WTMF 1 Year Performance

WTMF is worth considering in the current environment for multiple reasons. First, advisors are looking for avenues to reduce correlations in client portfolios. Managed futures check that box. Second, managed futures funds usually employ long/short strategies, providing clients with some buffer if markets decline.

Additionally, though a product like WTMF isn’t explicitly intended to provide protection against rising interest rates or inflation, they often do just that. Making WTMF all the more alluring is that WisdomTree is including equity futures in the fund.

“Our goal is to incorporate a tactical equity model into the Fund to enhance absolute returns, while prioritizing WTMF’s functionality as a diversifying alternative,” write WisdomTree’s Alejandro Saltiel and Matthew Aydemir. “Our tactical equity model is a data-driven, systematic strategy that invests in a diversified basket of five broad equity index futures contracts (S&P 500, Nikkei 225, S&P/TSX 60, Euro Stoxx 50 and Russell 2000). The combined weight of this equity component of the model is limited to 40% of the exposure in the strategy.”

As of June 4, WTMF was primarily allocated to Treasury futures, floating rate note futures, and currency contracts on the British pound, euro, and the Swiss franc, among others.

Enhancements are also being made to WTMF’s commodities model. That could make the fund more attractive at a time when commodities are among this year’s best-performing asset classes. For example, the broad-based WisdomTree Enhanced Commodity Strategy Fund (GCC) is up 18.43% this year.

“In June, we will incorporate a two-factor momentum signal that seeks to provide higher conviction when taking a certain position in a commodity contract. The two momentum factors use significantly different methodologies, yet both seek to determine the direction a commodity is trending,” add the WisdomTree analysts.

The actively managed WTMF has $134.14 million in assets under management as of June 4. The fund, which debuted in January 2011, is higher by 11.24% year-to-date.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.