First Trust Managed Futures Strategy Fund (FMF) seeks to generate positive returns in both rising and falling markets by investing in managed futures strategies. This alternative investment ETF provides exposure to commodity trading advisors (CTAs) who use systematic, trend-following algorithms to trade futures contracts across commodities, currencies, interest rates, and equity indices.
How It Works
FMF employs an actively managed fund-of-funds approach, selecting and allocating capital among multiple managed futures sub-advisors who execute quantitative trading strategies. The fund's underlying managers use computer-driven models to identify and capitalize on price trends across global futures markets, taking both long and short positions. Portfolio allocations are dynamically adjusted based on market conditions and strategy performance, with monthly rebalancing typical among constituent managed futures programs.
Key Features
- Provides access to institutional-quality managed futures strategies typically requiring million-dollar minimums through a liquid ETF structure
- Offers potential for positive returns during equity bear markets through trend-following strategies that profit from sustained price movements
- Generates meaningful dividend yield of 4.41% from trading profits and interest on cash collateral backing futures positions
Risks
- This ETF can lose value when markets trend sideways or experience frequent reversals, as trend-following models perform poorly in choppy conditions
- Complex derivatives strategies may result in sudden losses exceeding 20-30% during periods when multiple trend-following models fail simultaneously
- High correlation risk exists during market stress when managed futures strategies may move together with traditional assets, reducing diversification benefits
Who Should Own This
Best suited as a satellite holding (5-15% allocation) for sophisticated investors with high risk tolerance seeking portfolio diversification and crisis alpha. Requires 3+ year time horizon due to strategy volatility and performance cyclicality. Appropriate for investors comfortable with alternative investments who understand managed futures complexity and accept potential for extended underperformance periods.