KMLM: Last Year Was Unprofitable; Here's What We Learned

2025-01-21 05:57:19 ET

Summary

• KMLM employs a trend-following, volatility-weighted futures strategy aiming for positive returns in all market conditions, but its performance has varied, notably struggling in 2024.
• The ETF leverages futures to provide over 100% exposure across commodities, currencies, and fixed income, managed by an algorithm rather than human expertise.
• Diversifying managed futures strategies across multiple funds, like CTA and DBMF, is crucial to mitigate strategy concentration risk and enhance portfolio performance.
• Despite KMLM's poor 2024 performance, I rate it a buy for its pure managed futures strategy, recommending a capped 10% allocation to reduce risk.

Introduction

For those not in the know, the KraneShares Mount Lucas Managed Futures Index Strategy (KMLM) employs a trend-following, volatility-weighted futures strategy to follow commodities, currencies, and fixed income. It promises a positive total return in all market conditions (although in the past, these promises have been hit or miss).

This is called a 'managed futures' strategy, where fund managers trade the underlying instruments to achieve "absolute return," or a positive total return in all market conditions. In KMLM's case, the sub-advisor doing the trading is Mount Lucas Management....

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