What Is a Managed Futures Fund?
A single managed futures fund can hold positions tied to oil, currencies, government bonds, and stock indexes all at once, going long some and short others in the same portfolio.
The short answer
A managed futures fund is a pooled investment that trades futures contracts across multiple asset classes — commodities, currencies, interest rates, and stock indexes among them — rather than owning the underlying assets directly. A manager, often following a systematic, rules-based model, decides when to be long or short each market based on trends or other signals, aiming for returns that don’t move in lockstep with traditional stocks and bonds.
Why futures instead of the underlying assets
A futures contract is an agreement to buy or sell something at a set price on a future date, and it lets a fund gain exposure to a market’s price movement without physically holding the asset. This matters for something like a barrel of oil or a basket of foreign currency, which would be impractical to hold directly. Futures also allow a fund to take a short position roughly as easily as a long one, which is part of what allows these funds to potentially profit whether a given market is rising or falling.
The trend-following approach many funds use
Many managed futures funds, sometimes called CTAs (commodity trading advisors) in older industry language, rely on trend-following models. The basic idea is that markets showing a sustained upward or downward move tend to continue that move for some period, so the model adds exposure in the direction of an established trend and reduces or reverses it when the trend weakens. Because the fund can apply this approach across many unrelated markets simultaneously, a downturn in one area — say, equities — doesn’t necessarily mean the whole fund suffers, since positions elsewhere may be moving independently.
How this differs from other alternative strategies
Managed futures funds are usually grouped with other strategies that aim to behave differently from a standard stock-and-bond portfolio. A market-neutral fund tries to offset market exposure through paired long and short stock positions, while a managed futures fund pursues a similar goal of independence from broad market direction, but does so across a much wider set of markets using futures contracts rather than direct security selection. Both may appear inside a broader multi-strategy fund as one piece of a larger mix.
What to weigh before considering one
- Complexity. The strategy relies on models and signals that can be difficult for an outside investor to evaluate or fully understand.
- Costs. Actively trading futures across many markets tends to come with higher fees than a simple index fund, which affects net returns over time, a factor also captured in a fund’s expense ratio.
- Correlation, not immunity. “Independent of the stock market” doesn’t mean immune to loss; trend-following models can lose money during periods when trends reverse quickly or markets move sideways.
- Fit with the rest of a portfolio. The value of this kind of fund is usually framed in terms of how it might interact with an investor’s existing asset allocation, not as a standalone solution.
The takeaway
A managed futures fund pursues returns by trading futures contracts long or short across many unrelated markets, often using systematic trend models. The appeal is potential independence from how stocks and bonds are performing, but that independence comes with its own complexity and cost structure worth understanding before adding one to a portfolio.