Managed Futures ETFs Are Useful Portfolio Diversifiers

In the recent financial crisis, investor portfolios took a huge hit. It was a wake-up call for investors: their portfolios need more hedge-fund type diversification.

Recently, ETFs that invest in this alternative area have been introduced. Managed futures ETFs tap into managed-futures strategies that are popular among hedge funds and commodity-trading advisors. These strategies have been utilized by hedge funds and other large, sophisticated investors to direct futures-based strategies for years. The following 3 managed ETF funds can provide an effective avenue for retail investors:

Elements S&P CTI ETN (LSC) is based on the S&P Commodity Trends Indicator index. The index is designed to apply a long/short strategy to six commodity sectors comprised of sixteen traditional, physical commodity futures contracts. It is a total return index that reflects the performance of a fully collateralized investment in the futures contracts.

WisdomTree Managed Futures ETF (WDTI) employs a similar quantitative, rule-based strategy designed to provide returns that correspond to the performance of the S&P Diversified Trends Indicator (DTI). The index is a composite of 24 highly liquid futures grouped into 14 sectors, with an even split between financials (i.e., currencies and interest rates) and physical commodities. The positions of each sector are either long or short (except for energy) based on price behaviour relative to a moving average (if energy is not positioned long, the sector weight is allocated to other sectors). Sector weights are determined by global production for commodities, and by GDP tiers for financials. DTI is actually a superset of CTI.

On this page, readers can find a document on the description of DTI and CTI, provided by S&P.

iShares Diversified Alternative ETF (ALT), on the other hand, is linked to the performance of a portfolio of foreign currency forward contracts and exchange traded future contracts that may involve commodities, currencies, interest rate and certain eligible stocks or bonds indices while seeking to reduce the risks and volatility inherent in those investment by taking long and short positions in historically co-related assets.

Please find below the table of Managed future ETFs:

Description

Symbol

1 Yr

3 Yr

5 Yr

Avg. Volume(K)

1 Yr Sharpe

Elements S&P CTI ETN

LSC

14.43%

NA

NA

38

74.1%

iShares Diversified Alternative

ALT

2.24%

NA

NA

24

46.83%

WisdomTree Managed Futures

WDTI

NA

NA

NA

46

NA