Volatility seems to have been the theme of this first quarter of 2022; inflationary concerns, geopolitical tensions and risks, and rising US rates have all created a challenging investment environment. Most major asset classes such as stocks, bonds and real estate have been largely down for the year so far, and some long volatility strategies and extreme risk strategies have also been down, wrote KFA Funds in a recent post.

The KFA MLM Index, a managed futures index of 11 commodities, six currencies and five global bond markets is up for the year, with the ETF trailing it, the KFA Mount Lucas Index Strategy ETF (KMLM), up 20.49% year-to-date as all major asset classes are negative for the year so far. The index was created in 1988 and measures returns from taking risk in the futures market and has historically performed strongly in bear and bear markets.

The index and KMLM provide possible hedges for equity, bond and commodity risk and have demonstrated negative correlation with stocks and bonds in both bull and bear markets. Investing in managed futures offers portfolio diversification, and keeping them in a portfolio can potentially help mitigate losses during market volatility and falling prices.

Image sources: KFA Funds White Paper

“In the years we have witnessed market volatility, having a managed futures investment in your portfolio has the potential to allow you to hold onto your stock and bond investments through tough times, to be able to a possible recovery”, according to KFA Fund.

Investing in Managed Futures

the KFA Mount Lucas Index Strategy ETF (KMLM) from KFAFunds, a KraneShares company, offers investments with managed futures contracts.

KMLM’s benchmark is the KFA MLM Index, and the fund invests in commodity currencies as well as global fixed income futures. The underlying index uses a trend-following methodology and is a modified version of the MLM Index, which measures a portfolio containing global currency, commodity and fixed income futures.

The index weights the three different types of futures contracts based on their relative historical volatility, and within each type of futures contract, the underlying markets are weighted equally in dollars. Futures contracts will be rolled over on a market-by-market basis as they near expiry.

The index assesses market trading signals daily, rebalances on the first day of every month, invests in securities with maturities up to 12 months, and plans to invest in ETFs to gain exposure to securities. of debt.

KMLM has an expense ratio of 0.90%.

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