A Well Timed Managed Futures ETF Launches

October 07, 2014

New ETF aims for a safer alternative when it comes to managed futures.

So-called alternative strategies hold more appeal when the outlook for performance in conventional asset classes looks rocky. With volatility returning to equities, a nagging fear of rising rates hanging over bonds and a cruel summer for commodities, that time may be now.

A recent ETF launch got me thinking about one alternative strategy in particular: managed futures. Managed-futures funds make directional bets about the price movements of commodities, currency and fixed income.

They use futures simply because the derivatives offer liquid access to the underlying assets with daily pricing. Because the funds can take long or short positions, they can profit from a price trend that’s either up or down. For the same reason, and due to their broad asset class exposure, they can provide diversification in a portfolio, especially due to low correlation to equity.

Trending Markets Provide Tail Winds

With commodity prices trending steadily downward since July, and the dollar strengthening against the euro and other currencies, a managed-futures strategy should perform well.

The three popular broad commodity funds shown here are each built differently, but each headed south for the summer. These are the iShares S&P GSCI Commodity ETF (GSG | A-100), the United States Commodity ETF (USCI), and the PowerShares DB Commodity Tracking ETF (DBC | B-86).

One clear culprit is the strong dollar, shown by the bullish greenback ETF, the PowerShares DB US Dollar Index Bullish ETF (UUP | D-73).

comm and USD

A continuation of these trends could be a helpful tail wind for new fund ProShares Managed Futures Strategy ETF (FUTS). FUTS competes with three other managed futures ETFs, but I’d argue that it’s most comparable to the big dog in the space, the WisdomTree Managed Futures Strategy Fund (WDTI | C-73).

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