How Advisors Turn a 30% Gain Into Long-Term Compounding
A defense strategy is only valuable if you can harvest it. Mount Lucas’s Jerry Prior offers insight into the managed futures premium, the 2022 playbook that saw managed futures shine, and how advisors turn diversification into compounding.
In this episode of Behind the Ticker, Brad Roth, CIO of Thor Financial Technologies, sits down with Jerry Prior, CIO of Managed Futures Strategies and COO of Mount Lucas Management, to talk managed futures and the KraneShares Mount Lucas Managed Futures Index Strategy ETF (KMLM). They discuss how managed futures perform across different market environments, why liquidity is the most overlooked alpha opportunity in portfolios, and how KMLM differs from other managed futures ETFs.
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Highlights From This Episode
- Mount Lucas Management and the MLM Index: Mount Lucas spun out of Commodities Corp in 1986, the birthplace of managed futures, and has been running the strategy for institutional investors ever since. Their MLM Index was built in 1988 around the idea that futures markets exist to transfer operational price risk from businesses and trend following is the most efficient way to harvest the resulting risk premium.
- What's Inside KMLM: The ETF trades 22 of the world's most liquid futures markets across bonds, currencies, and commodities, using a simple one-year moving average as its sole trend signal. Notably, it excludes equity index futures entirely, a deliberate choice to preserve the sharpest possible diversification benefit during the moments the fund is most needed.
- The Case Against Volatility Targeting: Most competing managed futures funds use volatility scaling to size positions, which improves Sharpe ratios but cuts exposure when markets are most dislocated. Prior argues this optimizes for the fund's reported numbers rather than for the advisor's actual need, which is maximum diversification available to harvest and redeploy during a crisis.
- Liquidity as a Form of Alpha: The strategy's value isn't just in what it returns, but in the advisor's ability to harvest those gains. After all, selling a position that's up 30% and rebalancing back into depressed equities is where real compounding happens. Mount Lucas's largest institutional redemptions come during their best years, because that when sophisticated clients execute that exact playbook.
Disclaimer: The market insights, projections, and investment strategies expressed in this article are solely those of the contributor and do not necessarily reflect the views or opinions of ETF.com. This content is provided for informational purposes only and does not constitute financial, investment, or legal advice.
