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What's The Best Managed Futures ETF? DBMF vs KMLM vs CTA
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Everyone is going to tell you not to put it in the market at all but the reality is you could put some of it in the market and do just fine. It doesn't have to be all stocks. I've been in a similar boat to you before and due to how long it took to find a house, my money was just rotting in the HYSA when it could have instead gained significantly with even a very defensive portfolio. Check out the 12 month inflation adjusted returns for [this portfolio](https://testfol.io/?s=dC058E4qMfh): * VTI: 30% * GLDM: 25% * TLT: 15% * KMLM: 30 All these stats are adjusted for inflation, back tested since 1992: * CAGR: 6.33% * Deepest drawdown: -15.42% 2 Worst year return: -7.5% (great financial crisis) * 25th percentile return: 1.5% * 50th percentile return: 6.4 This simple portfolio has a 12 month lump sum win rate of 77.5%. So, yes, you would be down 22.5% of the time with it. Is that a risk you're interested in taking? Only you can say.
Volatility is still relatively low, but creeping towards mid tier imo. We are still well above historical prices which is bullish for low volatility / decent rise. Money is being made, taco trade is still taco'ing. Normally, you should only hold the portfolio you can stick to, so why are you doubting now? Some signals are flashing red, like junk bonds trending down in value or people taking out short term vix positions to hedge, but other signals are flashing green. Its not rosey cheeks 6% volatility plus strong RSI like a month ago. If youre just investing in the index, id probably say just stay the course. If youre worried about recession, maybe take out some intermediate treasury exposure via IEF or direct purchase of ITTs from treasury direct (or if youre high conviction, LTTs like ZROZ), and if youre worried about stagflation... Wellll you better fight for a raise at work, and maybe learn about managed futures trend ETF offerings like KMLM, CTA, DBMF, AHLT, stuff like that.
Cash, Gold, anti-Beta fund like BTAL, maybe managed futures like KMLM or CTA
If you’re under 40: 50% UPRO, 20% GLD, 20% KMLM, 10% VIXY. Do that and chill.
I see your backtest is pretty similar to what I was trying to do - basically have leveraged equities positions that are hedged with other things. My portfolio was loosely based on a bogleheads forum post from hedgefundie (think the post is still around). A problem with these backtests is that they incorporate a lot of historical performance that may not carry into the future. My main criticism of bonds (especially long duration bonds) is that I think bonds will be correlated with equities in the future- so it will not provide the hedge you are looking for. Look at 2022 (when fed was raising rates) and during Liberation Day (when the US was trading like an emerging market). My brief read through ZROZ's site is that it's heavily in long duration treasury bonds. So I'm not optimistic it will actually behave as a hedge when you need it. KMLM is interesting. Seems complicated, but my understanding is it's a "crisis alpha" type fund- tries to generate positive returns during periods of crisis via commodities, bonds (us and ex us), and currencies in a vol-control manner. But one perplexing thing- wonder why it didn't do well this April during the big dip - maybe because it is long USD and it's getting chopped because its mean-reversion vol algorithm is too slow. Sorry this is really long - but I don't think investing triple leveraged ETFs with a hedging strategy is good for me. It's too backwards looking. Even making trades based on 200SMA is driving by looking out the rear view window. I've had better success investing with a 1-5 year outook based on macro expectations.
ZROZ is like a leveraged version of TLT, gives noncorrelation or negative correlation to equities with slightly positive expected return. I actually use EDV for even more negative correlation but for backtesting purposes ZROZ has a longer time period availability. KMLM is much the same, diversification against equity, gold, and treasury bonds exposure with positive expected returns in the long run.
Kind of curious. What is the basis behind KMLM and ZROZ? FWIW, I tried a 1/3 TQQQ, 1/3 UPRO, 1/6 TLT, 1/6 BTAL leveraged ETF portfolio in my HSA and didn't see the same results as the backtest. Maybe I was really bad at executing, didn't sell in 2022, but chose to deleverage early this year. Don't regret doing that b/c I sleep better.
Mostly GLD, KMLM, XLE, PDBC, and VHT. But those are hedge positions. Outside of that my speculative cash is on KTOS, ENVX, and SPWR.
Last week my wife demanded I come out of the bathroom. “Not now! I’m hedging!” She told me to stop that right this instant. Isn’t she going to feel stupid when I show her my GLD, XLE, and KMLM positions…
So you have a couple options: 1. You can sit in a cash proxy like SGOV 2. You can model a portfolio with multiple hedges that balance out 3. You can incorporate funds like KMLM, BTAL, SJB, TAIL 4. You can mitigate risk by going into hedged or rebalancing ETFs like ALLW, HEGD, or Pacer Trendpilot.
My personal allocation is - TQQQ 55% - UGL (gold 2x) 15% - EDV (bonds) 15% - CTA/KMLM (managed futures) 15% TQQQ, gold, managed futures, bonds strategy with 200SMA switch Results with dotcom bubble and 2008 GFC: Strategy: https://testfol.io/tactical?s=93v4T1s6yXo Standard ETFs: https://testfol.io/?s=9giBG7lgiNi
TQQQ and QLD UPRO and SSO ZROZ, EDV GLD and lower ER variants CTA, KMLM, and DBMF
Risk-on: 33% TQQQ for 99% equity 33% BTC 12% UGL for 24% gold 12% KMLM and CTA 10% ZROZ Risk-off (under 200SMA of QQQ): 25% QQQ 25% UGL 25% CTA and KMLM 25% ZROZ
Are you willing to go more aggressive than VTI/VXUS? I am 26 and allocate my portfolio to follow a 200SMA TQQQ strategy with hedges. Above 200SMA of QQQ it looks like 33% TQQQ, 33% BTC, 12% CTA and KMLM, 12% UGL, and 10% ZROZ. Below 200SMA, it becomes 25% QQQ, 25% UGL, 25% CTA and KMLM, and 25% ZROZ. There is more volatility than 100% VOO, but similar max drawdown and far higher risk-adjusted-return.
DBMF, KMLM, and CTA are the most popular diversifiers. Add SIM to the end of DBMF or KMLM to extend the range of the backtesting dates. CTA has only limited historical data.
Gold miners aren’t the same as gold, and MSTR isn’t in the SP500 yet still. Bonds tend to be noncorrelated with equities. Managed futures such as KMLM, DBMF, and CTA are excellent diversifiers. This is all based on backtesting data for my leveraged ETF strategy, not pulled from my butt. People just don’t know it lol.
IAUM - gold CTA/KMLM/DBMF - managed futures TLT/ZROZ - 20+ year treasury bonds
I’m not saying that OP’s portfolio fits that criteria, but you definitely can diversify away the specific risk of the stock market. You could do a long/short market neutral portfolio or other hedge fund strategies that are uncorrelated to the stock market. This is not an endorsement, but managed futures funds had very high returns in 2022 when both stocks and bonds did poorly (examples in the ETF world would be KMLM and DBMF). You could also do a risk parity portfolio that, aside from stocks and bonds, invests in real assets (and perhaps other strategies like the aforementioned managed futures). In fact, the statement that if the stock market goes down you will go down, is not even true for someone that would have had a meaningful allocation towards long term bonds during the 00s.
I hold DBMF, KMLM and CTA. CTA seems to be the best one in terms of design for (expected) absolute returns as it uses several strategies, so it’s diversified not only in its holdings but also the kind of factors it uses (trend following, carry, relative value and risk off). I encourage you to watch the CTA deep dive videos, where they explain their strategies. The problem is that even if it has a submanager (Altis Partners), it’s a Simplify ETF, and Simplify has a history of blowing up their ETFs. If it had any other issuer, I’d be tempted to have it as my main managed futures fund.
Watch the bond yield, with moody downgrading the US could get spicy. There are 600 to 700 billion in unrealized losses on the banks books at 5% on the 10yr. This was the last of the AAA, 2023 the middle of the 3 with 2011 being the first.will it matters who knows? We are also in a downward revision cycle on earnings which is now as bad as covid. Home sales are down to 2009 levels. Potential catalyst up is the removal of tariffs.At this point it's probably at least 2-4 months after that until things normalize. In general I think we will probably go into or are in economic slowdown. So watch ACI, MO and other defensive stocks for signs of fear / raising up. If things get to stagflation fears then KMLM is probably great as is PRAA. It's a bull market somewhere, always)
Look into dedicating a sliver of your portfolio to Trend (KMLM, CTA, DBMF, etc.).
Something like KMLM is a safety play as well, especially is stagflation town if that looks like it's gonna hit. Break in case of emergency
Yes. If you're older, roughly - 20% global stocks (an all in 1 fund or 1/3 each US, developed international, emerging markets) 30% bonds 20% gold 30% trend following funds These are rounded from a risk parity estimate. A more robust, diversified All Weather + international approach. It will have about a 7% annualized volatility. With a Sharpe ratio at 0.5-1, say you get an excess return of 5% + 2% risk free rate = 7% overall nominal return in the long run. In a bad downturn (3 or 4 standard deviation event, rare like 2008), take that average, 7% - 4*7% = 7% -28% = roughly 21%. So much safer than a 50% or 60% drawdown if you have all stocks. So, could do: 20% VT 30% IEF 20% GLDM 30% divided evenly between KMLM, DBMF, CTA. If you want to be more aggressive, I'd recommend the Return Stacked suite of ETFs for all in 1 solutions. Good luck out there!
TLT, GLD (though it'll dip and then bounce), DXY (same but dip bounce dip). KMLM Inverse ETFs Dividend aristocrat stocks.
If stocks stagnate, that means there isnt cheap or excess money flowing into the system. Bitcoin does not go up in this scenario. The other real return asset classes that have low correlations to stocks that youre missing are bonds (especially long duration) and managed futures, such as CTA or KMLM.
Absolutely, this is 100% the best way to use LETFs in my opinion. My long term buy and hold (with quarterly rebalancing) portfolio in my IRA is ~1.6x leveraged, using UPRO to get me more exposure to US beta, and the space that opens up in my portfolio lets me buy long term treasury bonds, international equities, and managed futures funds. I love the concept of NTSX/I/E and RSSB, my only gripe is their target duration on their bond futures. They mostly hit durations similar to IEF (~7yr effective duration). I want longer duration, so I do it myself with UPRO, small cap value funds, managed futures funds (CTA, KMLM, etc), and then I use GOVZ and ZROZ (effectively the same thing, ~26yr effective duration STRIPS) for my long term treasury bonds. Rebalance agnostically, ride into the future, hope for the best. That diversification (to managed futures, bonds, and international) has really helped during this 2025 so far.
I am looking into managed futures ETFs like CTA and KMLM, as well as TIPs ETFs. If anyone has some insight I would appreciate it.
Nope. Most of my savings is in VTI/AVUV and then 10-15% in anti-beta hedges like CTA/KMLM/BTAL, then 120 MSTR shares.
Do any of you guys have a leveraged ETF portfolio? I was eye TQQQ / ZROZ / KMLM but really trying to time the bottom here, in mango market wondering if I should wait for -20% on Nasdaq first
Long-Short equity ETF -- shorts high beta and longs low beta. Low dividend, and adjusted expense ratio is pretty low. Its actually closer to 9% of my portfolio. The other 6% is KMLM, which is long short commodity futures.
The scenario it seems like you're describing sounds like stagflation...Managed futures funds would be the way to go during this kind of period. Look at KMLM's performance during 2022 for example.
Managed futures (trend) and gold are more likely to perform well during inflationary periods. DBMF, CTA, KMLM, GLD are a few tickers to check out.
40 year old Canadian. Fairly low income. Self directed TFSA @ $35000 USD NTSX 50% NTSI 15% CGDG 10% BTGD 10% KMLM 7.5% DBMF 7.5% $10000 CAD in 5 year GIC, 2 years to go. $25000 CAD in aggressive allocation options in work RRSPs
Absolutely! RSST is a good one to look into, as well as KMLM and DBMF. Anyway, they are investment strategies that trade futures contracts across asset classes like commodities, currencies, and bonds (equities sometimes too). KMLM follows a systematic trend-following approach, investing in commodities, currencies, and global bonds, but excludes equities. DBMF aims to replicate the performance of top managed futures hedge funds and includes equity exposure. Both funds can go long or short on their respective markets, allowing them to potentially profit in both up and down markets. Here's a good YouTube video overview: [https://www.youtube.com/watch?v=xMZ9NOUmK2w&pp=ygUPbWFuYWdlZCBmdXR1cmVz](https://www.youtube.com/watch?v=xMZ9NOUmK2w&pp=ygUPbWFuYWdlZCBmdXR1cmVz)
Managed futures, including the KMLM ETF, can offer some tax efficiency due to their unique tax treatment under Section 1256 of the tax code. This treatment allows for a 60% long-term and 40% short-term capital gains tax rate, regardless of the holding period, which can be advantageous compared to other investments that require a year-long holding period for long-term capital gains rates. However, managed futures are generally not considered highly tax-efficient in taxable accounts due to frequent taxable events and potential tax drag from cash collateral. It’s advisable to consult a tax advisor for personalized advice.
Given your financial situation, here are some strategies to consider for allocating your surplus funds: Investment Options • High-Yield Savings Accounts / Money Market: Consider placing a portion of your funds in high-yield savings or money market accounts for liquidity and safety, with rates up to 4-6% APY. • Factor-Based ETFs: Search YouTube for more information, but I like the Avantis and Alpha Architect products as overlays to my broad market index Diversification • Alternative Investments: Consider diversifying into alternative investments like managed future ETFs to reduce market correlation. I use DBMF and KMLM Education and Skill Building • The Investment Checklist by Michael Shearn is an underrated one
Consider this mix: 1. S&P 500: Use an index fund or ETF for broad market exposure. 2.Small-Cap Value: Check out AVUV (Avantis U.S. Small Cap Value ETF) and AVDV (Avantis International Small Cap Value ETF) for potential high returns. 3. Emerging Markets: Go with AVES or FRDM for growth in developing economies. 4. Managed Futures: Add a sprinkle of DBMF or KMLM to hedge against volatility. This combo balances growth and risk across diverse asset classes. Happy investing!
There are a lot of things to consider. Don't forget that you can also put in 50% or so, reducing both your volatility and returns by half. Another option is to do some hedging. You could put 80% or so in the market, and the rest in uncorrelated assets like BTAL, ZROZ, KMLM or even gold. But the math is against DCAing. It's a good idea if someone is starting out a strategy that they're not sure that they can stick with. However, its benefits are generally psychological.
KMLM and CTA. They dont do equity trend so theyre better diversifiers. One of CTA's design mandate is pretty much to get as close to zero zero correlation with stocks/bonds. https://testfol.io/?s=6hhV0eHu0wL 2022 stagflation was KMLM's time to shine. The bond trend of following them downwards while high inflation led a lot of commodities to get more expensive made them a lot of money. Main problem for MF is in choppy markets, where fake signals in the algorithm pop up and the revert quickly, called "whipsaw"
Managed futures, CTA and KMLM
My mix in a tax advantaged account would likely be some blend of light leverage on the S&P500 (like SSO), US small cap value with AVUV, international diversification, a ~20% allocation to long US treasury bonds (hedges equity crash), and maybe a 20-30% allocation to managed futures trend ETFs like KMLM and CTA. This portfolio would be rebalanced regularly. Stocks, MF and Long Ts has made for solid performing portfolios that have rather small drawdowns and great looking performance. For example, over the last 32 years, something simple and US centric like 50/30/20 SPY/KMLM/ZROZ (S&P, managed futures trend, long treasuries) had a CAGR of 10.27%, max drawdown of -20.66%, and a sharpe of 0.82 compared to simple SPY which had a CAGR of 10.55%, max drawdown of -55%, and a sharpe of 0.5. You can ratchet that up, shave 10% off SPY and then add 10% UPRO, total leverage 1.2x, CAGR of 11.54%, max drawdown of -30%.
Inflation/stagflation/inflationrecession is exactly what managed futures strategies are for. Theyre a dog when it comes to taxes since they continually distribute (forced to), but if you use them in an IRA, 401k, or HSA, you can get serious third leg diversification with a stocks/bonds portfolio. Managed futures trend strategies have very very low correlation with both stocks and bonds, and had very good returns during times like 2022, 2016, GFC, dot com. They have a lower realized return than stocks long term, and the tax treatment is a pickle. But, you can make a *very enticing* portfolio by blending in MF ETFs like CTA, KMLM, or DBMF into a portfolio https://testfol.io/?s=c5pv1hNbz0v Note how all the other options had a better max drawdown than just SPY. Juice a lil leverage on top to get back to at least 100% equity exposure, while also having room for managed futures and bonds, it looks great. Even if you dont leverage and just did 45/30/25 SPY/KMLM/ZROZ, your max drawdown is only like 18% and until this very recent huge equity bull run you were beating SPY over the last 30 years. Managed futures are an uncorrelated source of expected returns. Long bonds hedge equity crashes. Equities, even when richly valued, are our long term source of primary expected returns. Managed futures includes exposure to commodities and their trends, so i feel no need for additional exposure to something like gold. Gold by itself tends to lower portfolio max drawdown (its also uncorrelated to stocks and bonds) but it also drags down portfolio total CAGR long term.
It is not a perfect hedge but I would simply recommend adding some managed-futures trend to your portfolio as it historically (and logically) does quite well in inflationary periods, but also can do well in deflationary ones, or just about any market, especially when equities/bonds (risk assets) are doing poorly. There are even great products out there like RSST (US equities) or RSBT (US bonds) which for every $1 you put in you get $1 of the beta exposure (equities or bonds) plus $1 of managed-futures trend replication on top. BLNDX is similar but 50% equities and more diverse trend system. Don't want the beta? Plenty of other funds out there: KMLM, DBMF, AHLT, ASFYX, PQTIX, QMHIX, TFPN.
Here are five portfolios. 1x SPY 2x SPY 3x SPY (SPXL) HFEA (55/45 SPXL/TMF, 3x SPY and 3x TLT) Modified HFEA (45/30/25 SPXL/KMLM/TMF, which is 3x SPY, managed futures trend strategy, and 3x TLT) https://testfol.io/?d=eJy1kl1LwzAUhv9KOBfSQaFdP7woiAg6BDucrhcbMsqxSWs0S2eabpPR%2F266ifvAiw1crnI4J%2B%2F7vJysoBDlK4oBKpxWEK2g0qh0SlEziABsYJLuVJvuHAVEXdccG5C%2Bp1zmAjUvJUQ5iorZkGH1lotyAZG7LdJcsU%2BjM2aoxJdRU6UQXBbpgkvazl66jQ2zUum8FLw0OC8rkDhtvYeDUUwsf0kocvFFhheDjhHgcs4qfcvnnBpO80Cr2rgrZiKhzFjvwFDz7IOpjfDmvpYeX8dXvmnPmMqY1OtszcQGqrAwCRp7B2NMrO7yP72P8x0%2BEss7X3rvKIowdIKQtKtwkn6PWPe9u5sTQJ5q83nYaZsIw9b%2FdyKJk%2BT5cCYI%2F8YNQsd3He%2BH%2BKEf97fYZCbqikxRYsEoyWtdK1Z1zhwmOCKMtz%2FTUo92%2B%2F7ebibNN7Q4NuE%3D SPXL by itself will implode. The max drawdown on SPXL is 98%. Even though we are in a super long bull market (the backtest looks great because we havent had a recent giant crash, yes im not forgetting covid, im talking dot com or GFC, because SPXL only dropped ~75% in covid), 2x still beats 3x. This is a common consensus among leverage users that higher than 2x cannot be held long term in good conscience without diversification and hedging, a la TMF and KMLM.
The comparison between Costco (COST) and CrowdStrike (CRWD) based solely on their forward P/E ratios (50x for COST and 75x for CRWD) and PEG ratios above 3 ignores key differences in their business models, growth trajectories, and market dynamics. Costco (COST) operates as a high-volume, low-margin retailer. It has a stable, predictable cash flow, massive scale, and significant pricing power. The retail sector traditionally trades at lower multiples due to its lower growth potential compared to tech. CrowdStrike (CRWD) is a high-growth cybersecurity company with a SaaS model. It's in a fast-growing sector with a strong demand for cybersecurity, especially after recent high-profile breaches. Its high multiple reflects its future growth potential rather than current earnings. Based on: - the overvaluation of the market (as you pointed out, plus intrinsic value vs value of the S&P at 40%-80% depending on the metric you use, Buffet Indicator at 175% adjusted for inflation), equities should be the priority for investing in this environment. - yields bouncing around so quickly, the market is caught between worrying about inflation and worrying about recession. - ratios (SPY/TLT, SPY/GLD, etc.) are showing the market is concerned with safe haven investments. - the geopolitical issues, election year, debt ceiling in Jan. 2025 The obvious strategy (as we see the market implementing) is rotation into consumer staple equities, bonds, t-bills, cash, KMLM, etc. Gold is useful but overvalued so that has to be factored in.
Yes, thats upro. Is 3x better than 2x long term? Thats really period dependent. Its certainly less stable. From a oure equities perspective the optimal leverage for gains + not getting obliterated is like 1.8-2x. You have to handle longer drawback periods (time to recovery from trough to former peak). 3x is only recommended with hedging, never alone, though tons of bozos will run around saying DCA DCA DCA DCA like thats a magic cure for having 95% unrealized losses, where you have to double your money then double it again then double it again and youre still not break even. 3x belongs with a hedge like TMF or KMLM or maybe even gold ive seen helps reduce max drawdown at the cost of lower CAGR, or a super volatile uncorrelated instrument like BTAL. Now, if the market really does crash 30-55% again, that certainly does sounds like a great generational buying opportunity, and DCA DCA DCA makes a lot of sense at that point, but being unhedged at the top of a soaring market just seems irresponsible and greedy.
Meh. Buy a managed futures trend fund which holds silver among many other commodities and financial assets and goes long or short. RSST stacks this on top of S&P500 ($1 gets you $1 equity, $1 trend). Want pure trend (stacked on t-bills instead?) KMLM is a great option. There are many others.
Buddy, I use leverage. UPRO, TMF, KMLM. Youre just outing yourself as a clown pretending that QQQ/SPY/VTI is every what people are talking about when you say 60/40.
The main point of the book is that the expected risk premia for stocks and bonds is very low right now which probably means that they won’t perform as well moving forward. You can react to this phenomenon in three ways: 1) taking more risk in stocks and hope for the best; 2) just endure it, or 3) diversify beyond a buy and hold equity/bond portfolio. He says that, market timing being really difficult, the best strategy is to have a portfolio that works during all scenarios, even when stocks and bond world badly. So he proposes investing in a buy and hold portfolio of stocks, fixed income, commodities, long/short market neutral risk premia, coupled with trend following and maybe tail risk protection. He also thinks that you should build a well diversified portfolio and then use leverage if you want to increase the risk/expected returns (that’s not an original argument, but a consequence of modern portfolio theory). The kind of portfolio that he proposes is hard to implement only with ETFs. Maybe you can use something like DBMF or KMLM for trend following, or RSST or RSBT if you want to use leverage. However it’s hard to find a properly leveraged long/short ETF because of regulations. BTAL is a risk neutral long/short fund, and RSSY and RSBY are leveraged funds that include a long/short carry factor strategy.
Futures are contracts where you agree to buy or sell an asset at a set price in a specific date. This contracts are tradable in an exchange so you can buy or sell them. They have mainly two uses: 1) they serve to transfer risk of the price of an asset, and 2) they can be used to get implicit leverage (instead of taking a loan to buy more of an asset you buy a futures contract and agree to buy that asset in the future). Managed futures are funds that invest in futures contracts. There are several strategies, like trend following (buying futures that are rising in price and selling those that are falling) or carry (investing in futures that have a significant difference in price to the underlying asset and taking the risk of the price not changing against you). Managed futures are attractive because they’ve historically have had positive returns higher than bonds, they’re uncorrelated to stocks and bonds and are positively skewed (they generally don’t make or lose too much money, but they can have explosive positive returns). They’ve historically worked well during inflationary shocks or during prolonged bear markets. They benefit from times of uncertainty because that’s when most trends develop and when people are more prone to enter futures contracts in order to hedge risks related to price changes (this means that there are better expected returns for taking those risks). You can invest in managed futures through ETFs. In my opinion the best two are KMLM and DBMF. Probably the first one is better because it’s more volatile (which means that you need less of it in order to have meaningful diversification) and because it doesn’t hold stocks futures (which means that it is even less correlated to stocks). Having said all that, don’t invest in it without doubt some research. This may be a good start: https://www.aqr.com/-/media/AQR/Documents/Insights/Alternative-Thinking/Understanding-Managed-Futures-82422.pdf
Short term bond trading based on what? There are two primary risk premia associated with bonds. Credit risk and term risk. Longer dated bonds carry more term risk (conditions changing over time may make a locked in bond appear worse. Inflation due to money printing eroded the value of long bonds and money flew into equities and short term debt (see: 2022, 1970s, many such cases). For example, look at TLT, EDV, GOVZ, ZROZ during those time frames. Theres also the credit risk premium. The riskier the debtor, the higher yield they must pay you. This is why US government debt is a low yield, theyre AAA never defaulted since the war of 1812. Buying a bond from Argentina carries more risk, so their yield will be priced at a higher credit risk (also inflation will increase the yield). Corporate bonds have higher yields than government bonds since governments have a monopoly on violence and have the ability to tax and print money, while companies do not. A single company is more likely to go under than a government, thus higher yields. But if youre trading bonds, that means youre trying to trade on price sensitivity? Bonds at their root are priced at a discount of some future value, paid in coupons and you get the principal back or held and accumulated to maturity like a CD. For you to make money swing trading bond actions, you would need to be able to know something that the 300 trillion dollar bond market doesnt already know, because whatever you can think of or read on the news has already been priced in. I would argue that the efficiency of the bond market is even higher than the equity market, so trying to outperform the bond market on a risk adjusted basis with bond trading will be... a titanic task. I use bonds for their diversification effect. Long treasuries, of all bonds, show some of the lowest correlation with the US stock market. Why do I want that? Im leveraged on large cap US stocks in part of my portfolio. If the market crashes even just 20%, in losing 60% in that. In that recession scenario, long treasuries will be negatively correlated and provide a rebalancing opportunity to sell high on treasury bonds and buy low on levered stocks. Managed futures (KMLM, DBMF) is the third leg of the stool and provides strong performance particularly in inflationary environments where long bonds would suffer even more than stocks would (2022). Based on history and the theory behind three uncorrelated/negatively correlated assets, I hope to outperform the index long term (not on a risk adjusted basis, no way) but with a similar max drawdown. A great place to learn about bonds is the rational reminder interview of Dave Plecha, global head of fixed income at dimensional fund advisors (the company that invested the first small cap value funds and beat the market over 30 years). https://rationalreminder.ca/podcast/163 Another good one is Ben Felix talking about bonds and credit spreads and all that fun stuff https://rationalreminder.ca/podcast/138
Target date is already maximally diversified from an equities perspective, and has bonds to boot. The only other things to "diversify" would realistically be gold (GLD) or managed futures (KMLM, DBMF, etc), but these are only really useful imo in a portfolio that can be rebalanced. You cant rebalance across accounts, so you could do something like VT + mf if youre looking for diversification.
Is it too risky? probably. For most most most people they cant handle it. I hold them (long term) in a mixture of uncorrelated or negatively correlated asset types (levered stocks, levered long treasuries, trend following managed futures). Stocks drive the returns in bull markets, long Ts are an insurance policy for recessions (Up 38% since I bought in april, not a good look for the economy), and managed futures do real well in stagflationary environments (see 2022 KMLM). These get rebalanced quarterly so you dont lose it all (like if you held 2x SPY through the GFC, youd lose ~86% from peak to trough, 3x SPY wouldlose ~97%). I am prepared to lose it all because my financial future is secured elsewhere with a very sensible mixture of low cost total market index funds for the US and ex-US, with some small cap value tilted ETFs. Employing leveraged ETFs is more of a moonshot, trying to take a shortcut (and yes, they can be held long term. Theyre not just for swing traders. Beta slippage is just a fancy word for compound returns. Percent moves day to day compound in LETFs just like with unlevered ETFs, just 3x as bad. This compounds on the way up, it also means you need to be going up more than youre going down to break even compared to the underlying's performance). You also have to think about costs. Expense ratios on levered equity funds tend to be ~10x as much as a cheap index fund like SPY. Also, youre paying an embedded cost (pegged to the LIBOR rate typically) for equity swaps in the fund which is where the leverage comes from, you gotta pay to gain exposure. Thankfully, this is basically the cheapest leverage in the market, far cheaper than margin. Tldr: You probably shouldnt play with leverage. Buy some good diversified low cost index funds, VWCE and such.
Forgot to add: If you’re looking for managed futures ETFs, DBMF is the one that’s more similar to an index fund (maybe KMLM also).
TMF KMLM SOYB WEAT DBA Basically, commodities and anything that isn't correlated to the equity market and assets that rise in a tightening cycle.
In 2023 I put $5K into 60% TQQQ and 40% KMLM and rebalanced every time one varied by 5%. That $5K turned into over $10K as of like 2 weeks ago, now it’s back under $10K thanks to the pullback, but yeah. Deez nutz.
Aggressive growth? SSO. Aggressiver growth? UPRO+TMF+KMLM
You could do half HYSA and half QQQ, or you could do half SPAXX/SGOV/BOXX and half with the HFEA strategy (55% TQQQ, 45% TMF) or similar, slightly less risky strategy (75% NTSX, 25% DBMF/KMLM). Use that leverage to your benefit where you can!
If you want some commodity exposure or other non-correlated exposures then look into managed-futures trend. DBMF, KMLM, AHLT, plenty of mutual funds etc... BLNDX is 50% stocks plus trend. RSST is 100% S&P500 plus 100% trend. Static gold has much longer periods of decline, and a lower expected return (0% real vs. trend which has had a longterm premium above inflation).
buying 100 shares KMLM on monday
What if you balanced SVIX out with KMLM? The past two years that would have gone nicely, but I don't know how to simulate it past that point. [https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=7GLGLpt9OellDnFULgna3O](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=7GLGLpt9OellDnFULgna3O) If somebody could backtest that it might be a viable SVIX strategy. Or I may be a smoothbrained lesser monkey. Either is a dice roll there.
If you want some inflation protection and diversification you'd be much better off holding managed-futures trend. KMLM, ASFYX, QMHIX, PQTIX, DBMF, AHLT, AHLIX, CTA, TFPN, RSST (includes S&P500 exposure on top), etc...
RPAR risk parity, DBMF, FMF, TFPN, KMLM managed futures that can short or go long on bonds, currincies, commodityies and stocks long short equity strategies to.
What do people think about replacing bonds as the typical equities hedge with managed futures? For example, instead of a typical 60/40 stocks/bonds portfolio, have 60% stocks and 40% managed futures. For a more aggressive take, have 80% some combination of stock funds (VTI with some small cap and value funds, maybe some QQQ or tech funds or whatever your preferred tilt is) and 20% managed futures (maybe KMLM and DBMF). Back testing of the past 23 years (using some proxies like the MLM Index for KMLM and something like the SG Trend Index for other managed futures funds to fill in the older years), which include the two bear markets 2000-2009, the roaring bull market, and the past few years of volatility/rate uncertainty make this combination look very good - better returns than the overall market, much smoother, with much smaller drawdowns.
Managed Futures are now available in ETF wrappers. Funds like CTA, DBMF, and KMLM. They are more expensive but arguably are the best uncorrelated diversified to stocks and bonds.
KMLM, DBMF and CTA have slightly different strategies: Here's a good rundown and comparison of which you should buy: https://wantfi.com/invest-in-managed-futures-etf-dbmf-kmlm-cta-review.html
>KMLM I had no idea about this fund, really interesting it combines different alternative assets.
I’d vote for managed futures. Something like KMLM or DBMF have done great since 2022 and have low correlation with equities and bonds. There’s a couple new products that mix bonds and managed futures (RSBT) or equities and managed futures (RSST) as well.
>DBMF, CTA, KMLM how do they work?
DBMF, CTA, KMLM are three of the biggest and they all have different approaches so you get a diversification benefit buying all three.
Arguably the best way to diversify beyond a stock and bond portfolio is with managed futures. KMLM, DBMF, and BLNDX are funds easily available to the general population, and there are good funds managed by AQR but they have high minimums.
Trend following KMLM CTA
I’ve got my kid’s roth in AVGE. All markets with a slight size, value and quality/profitability tilts. If you wanted a bit of leverage and treasuries then NTSX is a good US fund. They have international versions as well. If you’re splitting up international into developed/emerging then I like FRDM for not including regimes like China, Saudi Arabia and Russia. They also exclude state-owned enterprises (SOEs). And then there’s your alternatives / trend following funds that I like to mix in. DBMF and KMLM are good.
60% USMV 40% KMLM make money slow and steady and guard against huge declines.
Trend-following funds like KMLM performed fantastically during 2022. I have no idea what the comments saying “real estate” are thinking. Mark-to-market real estate performed terribly last year, and as long as interest rates stay high, lots of real estate investors are going to suffer as their low-interest loans have to be renewed at current rates.
I don't know if it's a bull trap or how long it can last or if we're at the beginning of a new bull market. I'm mostly invested in JEPI/VOO/AVUV/AVUS/KMLM/TLT, with a good chunk still in i-bonds and a 5 percent CD. I do think, though, that those people are right when they say say we're in serious macro uncharted territory with inflation, global debt, asset price bubble everywhere, reversing globalization and demographic tailwinds, and slowing global growth It's some new normal. Until it isn't. And it comes down to valuations that don't reflect all of this, and mean reversion can be a bitch Here's one of the best pieces I've read on this: https://www.hussmanfunds.com/comment/mc230221/
> KMLM and DBMD are etfs that do this. They are not even correlated between them so I'm planning on adding 2 or 3. interesting
Managed futures, KMLM, DBMF, RSBT, Market Neutral, BTAL, LBAY, hedge fund replication HFND.
I recently learned about managed futures and it does just what you need. It's a fund going long/short commodities ( coffee, soybean, etc), energy (crude oil, natural gas), currencies and materials ( gold, silver, cupper). They find for trends and ride them using future contracts. It has zero correlation with stock and bonds. KMLM and DBMD are etfs that do this. They are not even correlated between them so I'm planning on adding 2 or 3. They have average returns of 5-6% annually, really volatile so don't expect a steady stream. The etfs are quite new but the indexes they track are go back 20 /30 years.
I added DBMF/KMLM combo to NTSX to balance it out based on what’s been written about them on SA. Both dropped significantly in January presumably after some kind of annual dividend payout. In so far, KMLM seems to be more volatile and move in opposing direction to NTSX whereas DBMF barely moves. Just observation over the last few months. I have also considered FIG and HFND but didn’t proceed.
Look at the mutual fund REMIX it stayed positive every year the last three years. 50 % equities 50% trend following which is basically long short different assets commodities, bonds, and equities. You could also look into just full trend following like DBMF or KMLM, AMFAX. Most of the time the strategy is not that great until 2000, 2008, 2020 happens or even this last drop. Has really low correlation with stocks and bonds or commodities. Adding a 20% allocation greatly reduces drawdowns during crisis. Down side is there are many years with 1-3% growth or it can be negative while other things are doing great..
Question about KMLM. I was thinking of adding some to my portfolio but i noticed sharp one day 10% drop on December 28. Any idea why?
Personally I’m skeptical of the gold portion of the Dragon Portfolio, and I think the trend-following should be expanded. Here’s an example of a robust portfolio that still has significant growth potential: 40% stocks + 25% KMLM + 20% BLNDX + 15% ZROZ The stocks would heavily overweight those with higher value and profitability. I’ve described the evidence for this approach [here](https://github.com/investindex/Portfolio), with specific fund suggestions. KMLM trend-follows among currencies, government bonds, and commodities (including gold). BLNDX trend-follows across multiple asset classes and also holds developed market equities. ZROZ has US Treasury bonds with the longest possible duration.
Maybe look at funds like DBMF or KMLM?
If you WANT to have a systematic approach that includes diversification beyond the S&P 500 I would consider a small position in Alpha Architect's or Avantis's ETFs for Momentum and Value strategies, applied to both US and Developed Ex-US markets. This is proven to outperform the market systematically over the long run, with no need for pesky human managers. It also charges far less than 85 bps. Finally, could diversify across asset classes with exposure to Managed Futures like the ETF KMLM (bonds, commodities, and currency trading). Again, systematic. Charging similar expense ratio but only to a portion of the portfolio instead of the whole thing.
What alternative investment strategies are worth investing in alongside a managed futures ETF like KMLM, which invests in commodities, currencies, and bonds?
If remaining within equities: Quantitative Momentum / Value systematic factor strategies. I posted about the Quantitative Momentum here since that's generally more applicable to stockpicking the latest names one might otherwise have FOMO over. You'll notice the lower correlation with the market while maintaining strong returns over the long run. https://www.reddit.com/r/investing/comments/zt7moi/its_finally_a_good_time_to_be_a_stock_picker_again/j1cf5ez?utm_medium=android_app&utm_source=share&context=3 If diversifying outside equities: I would look to Managed Futures in the form of the ETF KMLM. This follows a quantitative, systematic approach as well, applied to commodities and currency futures trading. You'll notice below how it maintains very low correlation with equities and in this drawdown it went the opposite direction of both Bitcoin and the stock market, instead of tanking with them. Low correlated asset classes provide a big difference in returns. [KMLM vs VTI vs ^BTC](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=1985&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=KMLM&allocation1_1=100&symbol2=VTI&allocation2_2=100&symbol3=%5EBTC&allocation3_3=100) To dig into the methodology, KMLM is trend-following prices on a monthly rebalance schedule with 3x leverage as follows: They use fixed allocation to each of 3 buckets, and then equal weight the assets within. 3x multiplier max long/short for each. Here's an explanation from them on how it works. It consists of a portfolio of twenty-two liquid futures contracts traded on U.S. and foreign exchanges. The Index includes futures contracts on 11 commodities, 6 currencies, and 5 global bond markets. These three baskets are weighted by their relative historical volatility, and within each basket, the constituent markets are equal dollar weighted. Rebalancing (monthly) and the long/short trend signals (daily) are two different, but related functions. Rebalancing occurs once a month and sets the anchor position size for a full long or full short position. Trend signals range from 100% to -100%, are evaluated daily, and multiplied by that anchor position. An example for natural gas: 25% is allocated to systematic commodities trading. There are 11 Commodities, so each commodity gets a 2.3% target allocation All markets are adjusted 3X, so Natural Gas target allocation is 6.8%, based on end of month prices. If the trend signal is full long 100% for the entire month, and the price doubles, Natural Gas exposure will double as well to 13.6%, and then reset to 6.8% on the monthly rebalance date. The trend signal is evaluated daily, and will take 21 or more days to move from fully long to fully short. If Natural Gas has a full long on rebalance date, exposure of 6.8%, then on the next day the trend signal is +90%, the new exposure will be 6.2% (6.8% * 90% ), give or take any price moves. And again, if day after trend signal is +81%, then new exposure will be 5.5%, give or take any price moves.
I do have about 10% KMLM and another 10% spread over a few bond funds, but am trying to keep a majority allocation in equities. You're right, though, it would make only a small dent. SCV in general seems to be roughly 80% correlated with SPX so a 20% allocation would only be worth about 4% in terms of beta reduction. I will reevaluate the idea.
If beta reduction is the goal bonds, commodities and trend following which kind of combines both of those together. Look into KMLM and DBMF these will save a portfolio when everything else is doing awful because they can go short as well as long.
Equities go up and down, that's just what they do. Many people will tell you VT/VTI are your best bet in any market. If you're front loading I guess you won't have the benefit of DCA to smooth it out, so if the volatility frightens you, there are some other options. - Low volatility ETFs consisting of value stocks, which are going to be less volatile than the big growth stocks, e.g. USMV. - Diversify with uncorrelated and less volatile assets. Obviously bonds are an option, but also consider a managed futures (KMLM) or long/short equities "beta neutral" (BTAL) strategy, but be aware these types of funds cost more. - If you're really uncertain, just throw everything into a tbill ladder and call it a day.
Agreed! It’s a lot more sensible and at the least people should use a product like NTSX for a levered 60/40. And if they want to get more exotic, something like 66 NTSX , 24 AVDV, 10 AVES Or get rid of NTSX and use all avantis for scv, qmom, imom, TYA, and KMLM, levered 30-50%.
Managed Futures is such a varied asset class in approaches, models and strategies. When looking at stocks or bonds you have plenty of indexes and metrics to compare funds performance, risk, holdings, etc. Managed Futures funds can vary widely because of managers, systems, models being used and markets being traded. Attempts to create a Managed Futures Index is futile. You have to get down to the granular level on these strategies and read all you can about these funds to see if it is something you have confidence will help your portfolio. There are only a few ETFs in the space to evaluate and none have a significant history to get an idea how they will perform over varying market conditions. You can get a little better idea looking at Mutual Funds that have existed longer. Tickers PQTIX, ASFYX, ABYIX, MFTNX, LCSIX, LFMIX, LOTIX. To name a few. The long term performance of the class is not great but, if you pick the right manager, they can help in a down turn. Real question is do you keep paying for that insurance in up markets by owning them or can you time the market? I bought PQTIX and AHLYX in early 2020 when Government spending was going nuts and I thought inflation is inevitable. At the time KMLM and DBMF either didn’t exist or didn’t have enough history for me to judge them. I doubt if this time around there will be a massive event like a pandemic to announce things are going to change. I am not sure I will keep holding them in the future. I hold about 20% of my portfolio in Managed Futures and a few other alternative strategies. It has lessened my loses but 20% is not enough to overcome the losses the other 80%, stocks and bonds, have had this year, it hurts a little less.
I would personally buy NTSX, AVGE, GAA, and a hint of managed futures (DBMF, CTA, REMIX, KMLM) for good diversification, low rebalancing frequency, and decent cost. Should give you plenty of exposure to all asset classes, factors, etc. For simplicity's sake, you could simply put 25% split four ways and rebalance quarterly or yearly based on volatility. Please don't put his tender little self into JEPI at this stage in his life.
There's a strategy called trend-following. Typically 50% Buy-and-hold 50% trend-following across any given stocks/bonds combination can be very effective for diversification and hedging benefits as well. For crazy individuals there's VMOT & KMLM as a power couple. You can also consider the 66% NTSX & 33% DBMF combination if you want to have your stocks & bonds cake and eat it too.
Some of the managed future trend following ETFs have been pretty solid and aren't just inverse leveraged ETFs. DBMF and KMLM for example.
Never options I just sell short. Trend following KMLM and NOPE are going to get me this morning. Looking at things though my long positions may save me from really being down.
First, you should ensure that you keep awareness of the money you have within a relatively small circle. Don't tell anyone who doesn't need to know. I've summarized what everyone should know about fraud prevention [here](https://github.com/investindex/Guidelines), if you'd like to take a look at that. For investing, I would encourage a focus on three things: (1) be patient and become **informed** before investing any money; (2) stay highly **diversified** and don't chase the high recent returns of certain investments; (3) focus on **total return** instead of passive income. This means that when investing in liquid assets, you don't prioritize income over capital gains, because you can sell the assets at any time. An excessive focus on income tends to needlessly reduce diversification. I would suggest diversifying into the following assets, and I provide some examples of funds you could buy: * Cap-weighted stocks ([VTI](https://investor.vanguard.com/investment-products/etfs/profile/vti), [VXUS](https://investor.vanguard.com/investment-products/etfs/profile/vxus), [VT](https://investor.vanguard.com/investment-products/etfs/profile/vt)) * Small cap value stocks, esp. those filtered for profitability ([AVUV](https://www.avantisinvestors.com/content/avantis/en/investments/avantis-u-s-small-cap-value-etf.html), [AVDV](https://www.avantisinvestors.com/content/avantis/en/investments/avantis-international-small-cap-value-etf.html)) * High-quality, short-term bonds for money you want to keep safe ([SCHO](https://www.schwabassetmanagement.com/products/scho)) * High-quality, long-term bonds ([BLV](https://investor.vanguard.com/investment-products/etfs/profile/blv), [EDV](https://investor.vanguard.com/investment-products/etfs/profile/edv)) * Managed futures ([KMLM](https://kfafunds.com/kmlm/), [DBMF](https://imgpfunds.com/im-dbi-managed-futures-strategy-etf/)) The managed futures are a more sophisticated asset, and you don't need to add those, but I include them because they're a fantastic diversifier. I've explained the risks of all these investments and a lot more about finance [here](https://github.com/investindex/Intro). Not trying to promote anything, but the info is there if you want to read it.
50% AVGE all word value tilt 50% KMLM managed futures trend following
If you want to invest in the stock market now, you don't have to wait to reach the $3,000 minimum for VTSAX. You can buy shares of [VTI](https://investor.vanguard.com/investment-products/etfs/profile/vti), [ITOT](https://www.ishares.com/us/products/239724/ishares-core-sp-total-us-stock-market-etf), or [SCHB](https://www.schwabassetmanagement.com/products/schb). These all hold a total US stock portfolio. VTI is the ETF version of VTSAX. SCHB has a low share price, making it easier to buy shares for someone with a small amount of money. In my view, the evidence indicates that gold's reputation as a diversifier is overrated. People invest in gold for a few reasons: * They think it is a widely recognized store of value (true). * They think it is a reliable hedge against inflation or economic downturns (not very true). * They think it would be useful as currency during a potential societal collapse. Gold is not a good inflation hedge: when inflation is unexpectedly high, sometimes it performs well and sometimes it does not. Prof Campbell Harvey has written a [variety of papers](https://scholar.google.com/citations?user=cajqjGAAAAAJ&hl=en&oi=ao) showing this. In 2021-22, gold has performed poorly despite unexpectedly high inflation. If you're looking for an asset to diversify a stock portfolio, bonds are the most commonly used. On a more advanced level, my view is that a managed futures fund provides more diversification. The fund [KMLM](https://kfafunds.com/kmlm/) follows trends among commodities, currencies, and bonds. It has [performed very well](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=2022&firstMonth=1&endYear=2022&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&reinvestDividends=true&showYield=false&showFactors=false&factorModel=3&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&symbol1=VTI&allocation1_1=100&symbol2=KMLM&allocation2_2=100) this year while stocks have fallen.
Individual Stocks (48%) Amazon (10%) Microsoft (10%) Apple (10%) Visa (5%) Nvidia (5%) T-Mobile (4%) Innovative Industrial Properties (1%) Taiwan Semiconductor Manufacturing (1%) Navitas Semiconductor (1%) Chart Industries (1%) ETFS (52%) SPDR S&P 500 ETF (35%) KMLM (6%) DBMF (6%) Vanguard High Dividend Yield ETF (5%)