As stocks, bonds fall, a trade that boomed in 2022 may be winner again

Managed futures strategies are becoming increasingly popular among investors seeking alternative sources of returns amidst market uncertainty. With both stocks and bonds facing pressure due to various geopolitical and economic factors, managed futures funds are seeing a resurgence in interest.

These strategies, typically managed by commodity trading advisors, utilize systematic models to trade future contracts across different asset classes. Instead of focusing on short-term market movements in traditional asset classes, managed futures funds aim to capture broader trends that unfold over several months. The ability to adapt to changing market conditions and their strong performance in 2022 has made managed futures funds more relevant in 2026.

During the tumultuous year of 2022, when the S&P 500 Index dropped by around 18% and the Bloomberg U.S. Aggregate Bond Index fell by approximately 13%, managed futures strategies saw a significant increase of 20%. This outperformance in a challenging market environment has caught the attention of investors and industry experts alike.

Nate Geraci, President of NovaDius, highlighted the significance of this outperformance, especially when stocks and bonds are facing downward pressure. Andrew Beer, managing member at DBi, which oversees the largest managed futures ETF, the iMGP DBi Managed Futures Strategy ETF (DBMF), emphasized how the uncertainty surrounding inflation, interest rates, and the global geopolitical landscape align well with the managed futures approach. These strategies can take both long and short positions and have the flexibility to respond to various market trends.

While managed futures ETFs currently represent a smaller segment of the market with a collective $6.5 billion in assets, the iMGP DBi Managed Futures Strategy ETF has attracted approximately $1 billion in flows this year. This growth indicates a growing interest among investors in accessing hedge fund strategies in a more liquid and transparent ETF structure.

Industry experts predict that the managed futures space will see further growth, with major asset managers like BlackRock, Invesco, and Fidelity Investments entering the market with their own managed futures ETFs. This move signals a real investor demand for these strategies, especially given the current market environment.

However, it is essential for investors to recognize that managed futures ETFs are more complex than traditional stock and bond investments. While they have the potential to outperform during periods of market stress and volatility, they can also underperform. Investors and advisors should have a solid understanding of how these strategies work before incorporating them into their portfolios. Investors looking to diversify their portfolios may want to consider adding managed futures to their investment strategy. According to industry experts, including Geraci and Beer, this type of strategy can be a valuable addition to a well-rounded investment approach.

Geraci emphasized the importance of sticking with managed futures through periods of underperformance. While these strategies can be highly effective when needed, investors must be patient and allow them to work over full market cycles. This long-term mindset is crucial for maximizing the benefits of managed futures.

Beer suggested that investors allocate around 3% to 5% of their overall portfolio to managed futures. By including this type of strategy alongside hard assets or infrastructure investments, investors can further diversify their holdings and potentially increase their returns.

Ultimately, the goal of incorporating managed futures into an investment portfolio is to help investors grow their assets while also providing peace of mind. By diversifying in this way, investors can potentially mitigate risk and achieve more stable returns over time.

In conclusion, managed futures can be a valuable tool for investors looking to enhance their portfolio diversification. By heeding the advice of experts like Geraci and Beer, investors can position themselves for long-term success and financial security.