First Trust Morningstar Managed Futures Strategy (
) offers individual
access to an investing strategy that's mainly available to
institutional investors, hedge funds or high-net-worth
FMF is an actively managed ETF that holds long and short
positions in futures contracts for commodities, currencies and
foreign and domestic stock indexes.
At its Aug. 1 debut, FMF held 30 positions with short exposure
-- a bet that prices will fall -- to agricultural commodities,
the yen and other currencies, precious metals and copper. It held
long futures contracts of the
, oil, euro and a few foreign stock indexes.
"Managed futures strategies have historically had low
correlation to stocks, bonds, and other investment strategies,
moderate volatility, lower drawdowns than equities and positive
returns in a variety of economic environments," First Trust said
in a statement.
They "have been successfully implemented by institutional
investors for nearly three decades, but have been typically
offered in hedge funds or private accounts until recently."
FMF will compete withWisdomTree Managed Futures Strategy (
), which has gathered $140 million in assets since launching
January 2011. The major difference is that FMF holds long U.S.
and foreign stock index futures while shorting some commodity and
currency futures. WDTI holds futures in a variety of currencies,
commodities and U.S. Treasuries but no stock indexes.
Last year WDTI lost 11%, while the S&P 500 returned 16%.
It's gained 5.5% year to date vs. 20% for the S&P 500.
"Managed futures tend to have positive returns when the stock
market is down and have negative returns when the market is up,"
David Cowles, director of investments at Mosaic Financial
Partners in San Francisco, said in an email. "So long as managed
futures average a positive return over time, it makes an ideal
diversification tool since it dampens the volatility of the
higher returning stock portion of the portfolio."
Both FMF and WDTI charge shareholders 0.95% of their assets a
year, which is expensive for
but cheaper than mutual funds using the same strategy.
Guggenheim Managed Futures Strategy , a mutual fund, has an
expense ratio of 1.36% to 2.36% depending on asset class. On top
of that, its sales commission runs as high as 5% for class A
shares. The fund is down 3.10% year to date. It's down nearly
4.45% in the past year, up an average annual 1.61% in the past
three years and down 13.46% in the past five years.
AQR Managed Futures Strategy Fund has a 1.5% expense ratio and
requires a $1 million minimum investment for individual
investors. With only three years of history, it's returned an
average annual 3.35% in that period. It's added 5.01% year to
date and 6.81% in the past year.
"Investors have placed about $200 billion in managed futures,
so there is certainly a desire for access to this asset class,"
Ron Rowland, founder of All Star Investors in Austin, Texas, said
in an email. "However, to date, no one has delivered a product
that lives up to the concept."
"FMF might be an option going forward when the monetary fur
hits the fan (perhaps soon)," George Luciani, CEO of Yardley,
Pa.-based Capital Planning Advisory Group, said in an email.
"Managed futures need market volatility, which is currently