Managed futures strategies have struggled this year, plagued by the slumping dollar and volatile U.S. trade policy, among other factors. However, advisors shouldn’t be hasty in writing off these alternative investments. The group could be primed to shine anew.
Should that rebound materialize, the Unlimited HFMF Managed Futures ETF (HFMF) — one of the newest entrants to the managed futures ETF fray — could be a source of leadership. The actively managed HFMF came to market in July. For those new to this corner of the alternative investments realm, it should be noted that managed futures should be judged over longer holdings, not time frames of just a few weeks or months.
Recent underperformance of managed futures at large "can test the patience of investors, so it may be helpful to remember how these strategies operate and why their value is best measured over longer horizons,” observed Morningstar analyst Janet Rohr.
HFMF for the Win
HFMF is potentially appealing to a broad swatch of investors. Many market participants know managed futures offer diversification benefits and the ability to reduce volatility in equity-heavy portfolios. However, it’s difficult for individual investors to build baskets of managed futures on their own. Plus, older iterations of these funds are often complex, feature high fees or both.
“Trend-following strategies typically use futures markets to benefit from trends across the global economy. These highly liquid futures markets allow managers to quickly enter and exit positions across areas like commodities, currencies, and stock indexes,” added Rohr.
For its part, HFMF currently holds, among other assets, equity and fixed income derivatives as well as commodity and currency futures. Many retail investors aren’t experts in those assets. Some don’t even know how to access them. HFMF, however, eases those burdens. It brings a strategy previously reserved for professionals and wealthy investors to the masses.
That accessibility is meaningful because many so-called “ordinary” market participants know diversification can be advantageous. They’re increasingly aware that correlations between stocks and other traditional asset classes have moved higher in recent years. Bottom line: HFMF has plenty of perks, but investors should be patient with the new ETF.
“Attempting to predict when these models will outperform is difficult and often counterproductive. Instead, their real strength emerges when held as a persistent allocation within a diversified portfolio. These strategies may not always shine, but their role as a diversifier makes them a valuable complement to more traditional holdings,” concluded Rohr.
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