Managed Futures as part of portfolio

[moneybagz]

I'm considering adding an allocation to Managed Futures to achieve some negative correlation/diversification benefits. It seems that all asset classes (stock/bonds/gold/commodities) suffer together in a major sell off.

I've found a fund at a reasonable cost, MontLake DUNN WMA Institutional UCITS Fund. Any thoughts on Managed Futures as part of a portfolio, and whether this fund is suitable? Many Thanks.

[minnow]

Hi MB. I've also been considering an allocation to managed futures. All the funds I looked at are packaged as US mutual funds so well done on finding something accessible to UK investors !

I've heard mixed things about M/Fs. I know that Meb Faber is a fan, but other quant managers like Wes Gray argue that recent returns have been comparable with US Treasuries, albeit with equity-like levels of volatility. Historic performance data seems to bear out this poor performance. M/Fs returned a cumulative 150% from 2000-2010, but only about 15% (total!) from 2010-2020 (I'm basing these numbers on data from the "SG Trend Index" that is published by Barclays). On the plus side, M/Fs did well in 2008 and they're having a very good 2022 too, so they do seem to exhibit that nice negative correlation we're all looking for.

One argument I've heard against M/Fs is that it's not clear why investors should expect to earn an excess return. With stocks there's a clear and persistent risk premium, but with commodity futures it's basically a zero-sum game. As more competitors enter the market, perhaps we might expect returns to be driven down further ?

I'm left feeling very conflicted ! M/Fs sounded appealing when I first learned about them but personally I'd feel nervous about a large allocation. Definitely not saying this is a bad strategy, but for me it's still in the "potentially interesting" pile.

[moneybagz]

Thanks for the reply. I agree, I feel conflicted and I'm undecided whether a small allocation would make much difference whilst at the same time questioning whether a relatively niche product is considered too risky for a larger allocation.

[BT63]

Why not just hold some cash?
It neither goes up nor down with other asset classes; zero correlation, minimal risk, no overcomplexification and no dealing costs.