Key Takeaways
- • KMLM delivered a 30% return in 2022 when major equity and fixed-income indexes suffered significant losses, demonstrating managed futures' defensive and diversification value during market dislocations.
- • The KFA Mount Lucas Managed Futures Index Strategy ETF (KMLM) provides systematic exposure to 22 liquid futures contracts across U.S. and foreign exchanges, employing trend-following methodology to adapt to unpredictable macro-level market events.
- • Managed futures strategies experienced a banner year in 2022, driving renewed institutional investor interest in the asset class as a versatile portfolio diversifier with positive performance during equity and fixed-income drawdowns.
- • KMLM's index weighting is based on relative historical volatility of individual futures contracts, providing systematic risk-adjusted exposure across commodities, currencies, and fixed income futures.
Summary
Following an exceptional performance year in 2022, managed futures strategies have captured renewed institutional attention as a defensive and diversifying asset class. KraneShares released a comprehensive playbook on February 24, 2023, detailing the mechanics and performance drivers of KMLM, the KFA Mount Lucas Managed Futures Index Strategy ETF, to help sophisticated investors understand how these strategies operate and what distinguishes them in an increasingly crowded field.
KMLM's standout 2022 performance provides compelling evidence of managed futures' value proposition. The fund returned 30% in 2022 at a time when traditional equity and fixed-income indexes sustained substantial losses, illustrating how trend-following strategies can profit from market dislocations regardless of direction. This defensive characteristic has positioned managed futures as one of the most versatile tools available to institutional investors seeking non-correlated return sources and portfolio resilience during macro stress events.
The fund tracks the KFA MLM Index through exposure to 22 liquid futures contracts traded on both U.S. and foreign exchanges. KMLM employs a systematic trend-following methodology that allows the strategy to capitalize on sustained price movements across multiple asset classes including commodities, currencies, and fixed-income futures. The index construction uses relative historical volatility weighting for each futures contract type, creating a dynamically balanced portfolio that adjusts to changing market conditions. This mechanical approach removes discretion and emotion from portfolio construction, enabling the strategy to adapt methodically to evolving macro environments.
The renewed institutional focus on managed futures reflects broader recognition of the strategy class's role in diversified portfolios. Unlike traditional long-only equity or fixed-income allocations, managed futures can generate positive returns during periods of equity market stress or inflationary environments that pressure bonds—scenarios that materialized throughout 2022. KraneShares' detailed examination of KMLM's components, mechanics, and performance drivers aims to demystify managed futures for institutional audiences and clarify how these strategies differ fundamentally from conventional asset classes in their return generation and risk management characteristics.
KMLM's standout 2022 performance provides compelling evidence of managed futures' value proposition. The fund returned 30% in 2022 at a time when traditional equity and fixed-income indexes sustained substantial losses, illustrating how trend-following strategies can profit from market dislocations regardless of direction. This defensive characteristic has positioned managed futures as one of the most versatile tools available to institutional investors seeking non-correlated return sources and portfolio resilience during macro stress events.
The fund tracks the KFA MLM Index through exposure to 22 liquid futures contracts traded on both U.S. and foreign exchanges. KMLM employs a systematic trend-following methodology that allows the strategy to capitalize on sustained price movements across multiple asset classes including commodities, currencies, and fixed-income futures. The index construction uses relative historical volatility weighting for each futures contract type, creating a dynamically balanced portfolio that adjusts to changing market conditions. This mechanical approach removes discretion and emotion from portfolio construction, enabling the strategy to adapt methodically to evolving macro environments.
The renewed institutional focus on managed futures reflects broader recognition of the strategy class's role in diversified portfolios. Unlike traditional long-only equity or fixed-income allocations, managed futures can generate positive returns during periods of equity market stress or inflationary environments that pressure bonds—scenarios that materialized throughout 2022. KraneShares' detailed examination of KMLM's components, mechanics, and performance drivers aims to demystify managed futures for institutional audiences and clarify how these strategies differ fundamentally from conventional asset classes in their return generation and risk management characteristics.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.