What Are Managed Futures Funds?

Managed futures funds have quietly become a cornerstone of institutional portfolios, yet many investors still wonder what these vehicles actually do. With over $300 billion in global managed futures assets and growing interest from both institutions and individuals, understanding this asset class has become essential for anyone building a diversified portfolio.

This guide breaks down exactly what managed futures funds are, how they work, the strategies they employ, and whether they might deserve a place in your investment approach.

Quick Answer: What Are Managed Futures Funds?

Managed futures funds are pooled investment vehicles that allocate capital to professional money managers—specifically Commodity Trading Advisors (CTAs)—who actively trade futures contracts and sometimes options on futures across global markets.

These funds are part of the broader managed futures industry but are packaged in regulated fund formats (such as mutual funds or UCITS funds) that make them accessible to both institutional investors and, in many cases, individual investors. Rather than requiring investors to open separate managed futures accounts with individual CTAs, these funds handle the complexity under one umbrella.

The core objective is straightforward: seek returns and diversification by taking long and short positions across futures on equity indexes, bonds, commodities, and currencies. This ability to profit from both rising and falling markets distinguishes managed futures from most traditional investments that only benefit when prices go up.

Managed Futures Funds vs. “Managed Futures” in General

Understanding the distinction between “managed futures” broadly and “managed futures funds” specifically helps clarify what you’re actually investing in.

Managed futures refers to the overall universe of CTA strategies—systematic and discretionary trading approaches applied to futures markets by money managers. Managed futures are a subclass of alternative investment strategies used by large funds and institutional investors to achieve both portfolio and market diversification. These strategies have existed since Richard Donchian launched the first public managed futures fund back in 1949, long before most current fund structures existed.

Managed futures funds, by contrast, are one specific way to access those strategies. They’re regulated pooled vehicles—‘40 Act mutual funds in the U.S., UCITS funds in Europe—that implement managed futures strategies within a familiar fund structure. You can typically buy and sell shares through standard brokerage accounts and even retirement plans.

This differs significantly from standalone managed accounts or private CTA programs. Those traditional arrangements often require minimum investments of hundreds of thousands or even millions of dollars, with monthly or quarterly liquidity at best. A managed futures mutual fund might have minimums as low as a few thousand dollars and offer daily liquidity.

Managed futures are different from hedge funds in that they generally trade in exchange-cleared derivatives such as futures, options on futures, and forward markets, whereas hedge funds may also use OTC derivatives and equities.

The trade-off? Private separate accounts can offer customization and potentially lower fees at scale. Funds provide convenience, regulatory oversight, and accessibility—but with standardized terms and fee structures that may include layers of costs.

For most investors exploring alternative investments, the fund format represents the most practical entry point into trend following and other CTA strategies.

How Managed Futures Funds Work

The basic structure works like any mutual fund, with one key difference: instead of buying stocks or bonds, the fund trades futures contracts.

Here’s the typical flow:

1. Investors buy fund shares through their brokerage accounts

2. The fund aggregates capital from many investors into a single pool

3. Managed futures managers deploy this capital according to their trading strategies. The portfolio manager assembles and manages a diversified portfolio of futures contracts.

4. Positions are marked-to-market daily, with gains and losses reflected in the fund’s net asset value (NAV)

The fund uses margin to establish long or short positions in exchange-traded futures. Because futures require only a fraction of the contract’s full value as margin, these funds can achieve significant market exposure relative to their cash holdings. Managed futures can take both long and short positions in futures contracts and options on futures contracts in global commodity, interest rate, equity, and currency markets. The remaining capital typically sits in highly liquid securities like Treasury bills.

Markets Traded

Managed futures funds operate across a remarkably diverse set of global markets:

This breadth—often spanning over 100 different futures contracts across exchanges worldwide—gives managed futures managers the ability to find opportunities regardless of which particular industry or region is driving market moves.

Most funds follow systematic, rules-based trading strategies, though some incorporate discretionary overlays where portfolio managers can adjust positions based on their market views. Some funds use discretionary strategies, which involve flexible, judgment-based decision-making by managers to adapt to changing market conditions.

Strategies Used by Managed Futures Funds

While the term “managed futures” might suggest a single approach, these funds actually deploy various investment strategies—though most are dominated by systematic, quantitative methods.

The common thread? Using historical price data and various indicators to determine when to go long or short across different markets. Funds may diversify across several CTAs or multiple models to reduce dependence on any single strategy performing well.

Strategy details, risk targets, and leverage levels are disclosed in the fund’s prospectus and CTA disclosure documents—essential reading before investing.

Trend-Following Strategies in Managed Futures Funds

Trend following is the backbone of the managed futures industry, accounting for the majority of CTA assets globally.

The concept is intuitive: trend traders buy markets that have been rising by taking a long position when the asset's price is trending higher to capture gains, and sell markets that have been falling by taking short positions. If crude oil has been trending higher for several months, the model goes long. If government bonds have been trending lower, the model takes short positions.

These signals typically rely on price data over medium to long horizons—often 3 to 12 months—using indicators like moving averages, breakout rules, or momentum measures. The approach is purely systematic: rules determine entries and exits, removing emotional decision-making.

Trend following strategies can perform strongly during extended bull or bear markets but may struggle in choppy, range-bound conditions where prices oscillate without clear direction.

This explains why managed futures funds had strong years during the 2008 financial crisis (when equities collapsed) and struggled during certain years when markets moved sideways.

Market-Neutral and Relative-Value Approaches

Not all managed futures strategies bet on market direction. Some employ a market neutral strategy that seeks profits from price relationships rather than whether markets rise or fall overall.

Examples include:

• Geographic spreads: Going long one equity index future (say, S&P 500) while shorting another (like EuroStoxx 50) to capture relative performance differences

• Yield curve trades: Taking matching long and short positions along the bond yield curve, betting that spreads between maturities will widen or narrow

• Commodity spreads: Long gold futures, short silver futures, or calendar spreads within a single commodity

By balancing long positions with short positions, these strategies aim to reduce exposure to broad market risk. The goal is profiting from mispricings or relative moves rather than being right about whether stocks or commodities go up or down.

Such approaches can complement trend following within a diversified managed futures fund, potentially smoothing returns during periods when directional strategies struggle.

Other Systematic and Discretionary Techniques

Beyond trend following and relative value, some managed futures funds incorporate:

• Short-term momentum overlays: Trading on shorter timeframes (days to weeks) to capture quick market moves

• Volatility strategies: Positions designed to profit from changes in market volatility rather than price direction

• Discretionary macro trades: Human judgment-based positions responding to economic views or geopolitical events

Advancements in information technology and a culture of continuous improvement have enabled managed futures managers to develop more effective trading models and strategies over time.

All these techniques typically operate within strict risk controls and position limits outlined in the fund’s mandate. Investors should review strategy descriptions and historical performance in official fund documents to understand exactly what they’re buying.

Benefits of Managed Futures Funds for Investors

Why do institutional investors and increasingly individual investors add managed futures to their portfolios? The answer centers on three factors: diversification, risk management, and return potential across different market environments.

Diversification That Actually Works

The non correlation managed futures have historically shown with traditional asset classes is the primary draw. While most alternative investments claim diversification benefits, managed futures have demonstrated low correlation to stocks and bonds over decades of data.

This isn’t just theoretical. During the 2008 global financial crisis, when equities lost roughly 50% peak-to-trough, many managed futures funds delivered positive returns. During the March 2020 COVID-19 crash, trend followers generally held up better than broad equity portfolios.

The industry calls this “Crisis Alpha”—the tendency for trend following strategies to capture protective returns during market stress when diversification matters most.

Structural Advantages of the Fund Format

Beyond strategy-level benefits, managed futures funds offer practical advantages:

For investors accustomed to hedge funds with quarterly liquidity and opaque valuations, the transparency of a registered managed futures fund represents a meaningful improvement.

Portfolio-Level Impact

Adding managed futures to a traditional portfolio of stocks and bonds has historically reduced overall volatility—not because managed futures are low-risk (they’re not), but because their returns often zig when traditional assets zag.

The ability to profit in falling markets through short positions means managed futures can potentially generate gains precisely when a stock-heavy portfolio suffers most.

Risks, Costs, and Considerations

Managed futures funds are complex, higher-risk alternative strategies. They are not suitable for every investor, and understanding the risks is essential before allocating capital.

Key Risk Factors

Market risk is inherent in any strategy trading volatile futures markets. Commodities can swing dramatically on supply shocks. Interest rate futures react sharply to central bank announcements. Currency markets can gap overnight on political events.

Model risk affects systematic funds. If historical patterns that drove past profits break down, the models may generate losses. Trend following strategies particularly struggle during choppy price action or significant price reversals over short periods.

Leverage and margin risk amplify both gains and losses. Futures allow significant systematic exposure for relatively small cash outlays. A small adverse move in underlying markets can result in substantial losses.

Drawdown risk is real. Even successful managed futures funds experience extended periods of losses. Some funds have taken years to recover from peak drawdowns.

Fee Structures

Managed futures funds typically charge:

• Management fees: Often 1-2% annually for the fund manager’s time and expertise

• Performance fees: Some funds include CTA-style incentive fees (e.g., 20% of profits above a hurdle rate)

• Trading costs: Active futures trading generates commissions and bid-ask spreads

• Tax considerations: Frequent trading and the unique taxation of futures (60/40 long-term/short-term capital gains treatment in the U.S.) create complexity

These costs can significantly exceed those of passive index funds. Investors should evaluate whether the diversification benefits justify the fee differential.

Due Diligence Considerations

Before investing, evaluate:

• The fund’s long-term track record across a full market cycle

• Maximum drawdown periods and recovery times

• Volatility relative to expected returns

• How the fund has performed during equity market stress periods

• Fit with your personal risk tolerance and time horizon

Regulation and Oversight of Managed Futures Funds

Managed futures funds operate at the intersection of securities regulation and futures regulation, providing a relatively high degree of oversight compared with unregulated commodity pools or offshore vehicles.

U.S. Regulatory Framework

In the United States, the regulatory structure involves multiple agencies:

Securities and Exchange Commission (SEC): Many managed futures mutual funds are registered investment companies under the Investment Company Act of 1940, subject to SEC oversight, disclosure requirements, and investor protections.

Commodity Futures Trading Commission (CFTC): The CTAs and Commodity Pool Operators managing the fund’s futures trading must register with the CFTC.

National Futures Association (NFA): Registered CTAs and CPOs must also be NFA members, subject to:

• Regular audits

• Detailed disclosure document requirements

• Performance reporting standards

• Business conduct rules

Disclosure Requirements

Fund managers must file detailed documents including:

• Complete strategy descriptions and risk factor disclosures

• Past performance records presented according to specific CFTC/NFA rules

• Fee schedules and expense breakdowns

• Conflicts of interest disclosures

International Regulatory Standards

In Europe, UCITS regulations provide similar investor protections with strict guidelines on leverage, liquidity, and risk controls. Local futures regulators in various jurisdictions add additional oversight layers.

This regulatory framework distinguishes managed futures funds from many hedge funds and private vehicles, contributing to transparency and investor confidence that simply doesn’t exist in less regulated corners of the alternative investments universe.

How to Evaluate and Select a Managed Futures Fund

Choosing a managed futures fund requires a different lens than picking a traditional equity or bond fund. CME Group, the largest derivatives marketplace globally, is a regulated exchange where Commodity Trading Advisors (CTAs) commonly trade managed futures strategies. Managed futures typically trade on regulated exchanges like CME Group, which provides transparency and regulation. Here’s a framework for evaluation.

Strategy and Structure Assessment

Start by understanding what you’re buying:

Risk-Adjusted Performance Metrics

Look beyond raw returns to understand risk-adjusted performance:

• Maximum drawdown: The largest peak-to-trough loss—how much could you have lost at the worst time?

• Recovery period: How long did it take to recover from major drawdowns?

• Sharpe ratio: Return per unit of risk (higher is better, but context matters)

• Sortino ratio: Similar to Sharpe but focuses on downside volatility

• Correlation: How does the fund behave relative to your existing stock and bond holdings?

Practical Considerations

Don’t overlook logistics:

• Fund structure: Mutual fund, ETF, UCITS, or offshore vehicle?

• Minimum investment: Some funds require only a few thousand dollars; others demand six figures

• Availability: Is it accessible on your brokerage platform?

• Total expense ratio: Include management fees, performance fees, and trading costs

• Tax treatment: Consider the impact of futures taxation on after-tax returns

Portfolio Fit

Consider how a small allocation—perhaps 5-15% of a diversified portfolio depending on your risk profile—might affect overall volatility and drawdown characteristics. The managed futures managers ability to generate returns in falling markets can provide meaningful portfolio risk reduction, but only if sized appropriately.

Consulting a qualified financial adviser before allocating to managed futures funds is advisable, particularly for investors new to alternative asset classes.

Conclusion: Where Managed Futures Funds Fit in a Portfolio

Managed futures funds are regulated vehicles providing access to CTA-style trading strategies via liquid, exchange-traded futures across equities, fixed income, commodities, and foreign exchange markets.

For investors, the key attractions are clear: potential diversification during market stress, the ability to profit in both rising and falling markets, and a level of regulatory oversight that exceeds many alternative investments. The managed futures growth over recent decades reflects institutional recognition of these benefits.

That said, these funds carry meaningful risks—leverage, model risk, extended drawdown periods, and higher fees than traditional index funds. They’re not a magic bullet, and they can underperform for extended stretches when markets lack clear trends.

For investors comfortable with alternatives and seeking to broaden beyond traditional asset classes like stocks and bonds, a carefully sized allocation to managed futures funds may improve overall risk-adjusted returns. The key is understanding what you own, sizing the position appropriately, and maintaining realistic expectations.

Past performance doesn’t guarantee future results. Any decision to invest should align with your individual objectives, risk tolerance, and time horizon—and professional advice is worth seeking before making meaningful allocations to this space.