KFA partners with Mount Lucas on managed futures index ETF

Dec 11th, 2020 | By | Category: Alternatives / Multi-Asset

Krane Funds Advisors (KFA) has launched a new index-based ETF providing exposure to a managed futures strategy.

Jonathan Shelon, COO of Krane Funds Advisors

Jonathan Shelon, COO of Krane Funds Advisors.

The KFA Mount Lucas Index Strategy ETF (KMLM US) has listed on NYSE Arca and comes to market with $25 million in assets under management.

The fund is sub-advised by Pennsylvania-based Mount Lucas Management, a provider of alternative investment strategies to institutional and high-net-worth investors.

The ETF tracks the KFA MLM Index which was developed by Mount Lucas.

The index consists of 22 liquid futures contracts traded on US and foreign exchanges across three distinct asset classes – 11 commodities (corn, crude oil, copper, gold, heating oil, cattle, natural gas, soybeans, sugar, wheat, and gasoline), six currencies (British pound, Canadian dollar, Australian dollar, euro, Japanese yen, and Swiss franc), and five global bond markets (US Treasuries, UK gilts, German bunds, Japanese government bonds, and Canadian government bonds). The weight of each asset class is determined on an annual basis by an index committee.

Each of the 22 futures contracts will be held as either a long or a short position for the following month based on proprietary volatility and trend-following signals. Within each asset class, the underlying futures contracts are equally weighted while also ensuring the index has a target annualized volatility of less than 15%.

Managed futures strategies have historically been used for diversification and volatility reduction purposes when included within traditional equity/bond portfolios. They may also serve as a potential hedge on equity, bond, and commodity risk.

Timothy Rudderow, CEO & CIO of Mount Lucas, commented, “We routinely see that institutional portfolios are underexposed to managed futures and over-exposed to equity risk. This scenario is fine when volatility is low, but the investment world was reminded in 2020 why highly liquid and uncorrelated investments are important. There may be significant beta in managed futures, and we believe our index is the best way to passively access that beta.”

Jonathan Shelon, COO of Krane Funds Advisors, added, “We are pleased to launch the KMLM ETF in partnership with Mount Lucas, leveraging their 30-year history and strong track record in the managed futures space. The ETF seeks to deliver the Mount Lucas team’s expertise and the potential benefits of managed futures to all investors through a cost-effective and highly liquid ETF structure. Launching KMLM continues our mission in providing differentiated, high-conviction investment strategies to global investors.”

The ETF comes with an expense ratio of 0.90%.

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