KFA Mount Lucas Managed Futures Index Strategy ETF

KMLM

Market cap $332M

For most of the last four decades, the 60/40 portfolio did exactly what it promised. Stocks climbed, bonds offset the losses when they didn't, and advisors could build client portfolios around a reliably predictable balance.

Managed futures funds spent most of the past decade as a footnote in portfolio construction conversations.

The S&P 500 has shed roughly its worst drawdown in the past 12 months during the early months of 2026, as tariff escalation and macro uncertainty rattled equity markets.

An increase in market volatility is driving ETF innovation around packaging ever-more complex strategies into single instruments. One example is the growth of strategies like managed futures.

The KraneShares Mount Lucas Managed Futures Index Strategy ETF offers strong diversification benefits via algorithmic trend-following across commodities, currencies, and global bonds. I see heightened stagflation risks for 2026, making KMLM and managed futures allocations especially timely for portfolios exposed to equities and bonds. Allocating 20% to managed futures like KMLM in a 50-30-20 portfolio historically improved returns, reduced volatility, and softened drawdowns versus traditional 60/40 mixes.

The KraneShares Mount Lucas Managed Futures Index Strategy ETF (NYSEARCA:KMLM) offers a 5% dividend yield based on its most recent annual distribution.

The 'Undercovered' Dozen series highlights lesser-known ETFs featuring in-depth analyses and offering unique investment opportunities for investors. The Mount Lucas Managed Futures Index Strategy ETF, Columbia India Consumer ETF, SPDR EURO STOXX 50 ETF, and Global X MSCI Greece ETF are recommended buys due to their strategic advantages and market positions. Invesco Dorsey Wright Industrials Momentum ETF and CoinShares Bitcoin Miners ETF receive hold ratings due to sector-specific challenges and concerns about diversification and expense ratios.

Managed future ETFs are funds that attempt to produce positive expected returns and some diversification to equities and fixed income. KraneShares Mount Lucas Managed Futures Index Strategy ETF offers low correlations with the S&P 500 and long-term US government bonds, which is great for diversification. KMLM has performed poorly relative to a couple of its key peers since 2022, making it an underappreciated fund, in my view.

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.

ETFs expanded their market share in recent years by bringing mutual and hedge fund strategies to a wider variety of investors. Taking strategies previously locked behind high entry fees and significant management fees, ETFs work to broaden the investing playing field.