Markets closed with a stock snapback on Friday as major indexes broke their three-week loss streak, but all attention remains focused on next week’s August consumer price index report and the subsequent Federal Reserve meeting the following week.
It could be a tumultuous two weeks, despite the gains experienced by major indexes to close on Friday, with the S&P 500 up 1.5%, the Nasdaq Composite up 2.1%, and the Dow Jones rising 1.2%.
Volatility has been one of the mainstays for markets this year, and the coming weeks are likely to be no different. Inflation remains persistently high and the jobs market continues to prove resilient to Fed tightening as interest rates climb and quantitative tightening hits high gear.
At a time when equities and bonds alike remain under pressure and move in correlation, advisors have been seeking alternative options for their portfolios and one of the strongest performers of 2022 have been managed futures ETFs. Managed futures can provide non-correlated hedging opportunities during times of increased volatility for portfolios and the KFA Mount Lucas Index Strategy ETF (KMLM) from KFAFunds, a KraneShares company, invests in futures contracts in commodities, currencies, and global bond markets.
KMLM’s benchmark is the KFA MLM Index, and the fund invests in commodity currency and global fixed income futures contracts. The underlying index uses a trend-following methodology and is a modified version of the MLM Index, which measures a portfolio containing currency, commodity, and global fixed income futures.
The index and KMLM offer possible hedges for equity, bond, and commodity risk and have demonstrated a negative correlation to both equities and bonds in bull and bear markets. Investing in managed futures offers diversification for portfolios, and carrying them within a portfolio can potentially help mitigate losses during market volatility and sinking prices.
The index weights the three different futures contract types by their relative historical volatility, and within each type of futures contract, the underlying markets are equal dollar-weighted. Futures contracts will be rolled forward on a market-by-market basis as they near expiration.
Futures contracts in the index include 11 commodities, six currencies, and five global bond markets.
The index evaluates the trading signals of markets every day, rebalances on the first day of each month, invests in securities with maturities of up to 12 months, and expects to invest in ETFs to gain exposure to debt instruments.
KMLM carries an expense ratio of 0.90%.
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