Newfound Research debuts ‘Return Stacked’ managed futures ETF

Feb 22nd, 2023 | By | Category: Alternatives / Multi-Asset

Newfound Research, a Boston-based quantitative investment advisor, has unveiled a new series of ETFs that seek to deliver capital-efficient exposure to uncorrelated asset classes.

Newfound Research debuts ‘Return Stacked’ managed futures ETF

Managed futures is a hedge fund style strategy that utilizes long and short futures contracts to benefit from trends in various asset classes

The ‘Return Stacked’ series has debuted with its inaugural fund – the Return Stacked Bonds & Managed Futures ETF (RBST US) – which delivers exposure to a broad USD aggregate bond portfolio as well as a managed futures portfolio.

Managed futures is a hedge fund-style strategy that utilizes long and short futures contracts to benefit from trends in various asset classes including commodities, currencies, equity indices, bond indices, and interest rates.

Managed futures strategies have historically exhibited low correlations to both stocks and bonds, highlighting their potential to enhance portfolio diversification. Additionally, with the ability to go both long and short global futures markets, managed futures may also exhibit inflation-hedging characteristics.

Investors who wish to add an alternatives sleeve, such as managed futures, to a traditional stock/bond portfolio will typically need to reduce their existing allocation to equities or fixed income, or both.

However, using leverage and a ‘return stacking’ framework, Newfound Research is able to translate every $1 invested in the ETF into $1 of exposure to the US bond portfolio as well as $1 of exposure to the managed futures strategy.

While the ETF does use leverage and delivers total notional exposure equal to 200% of its net assets, Newfound notes that this leverage is applied to two uncorrelated asset classes and, therefore, does not lead to significant increases in risk but rather serves as an efficient means of unlocking diversification.

Investors may wish to substitute part of their portfolios’ existing fixed income allocation for the ETF. This is intended to have the effect of switching broadly similar core bond exposures while also adding the managed futures exposure, thereby incorporating an alternatives sleeve without changing the portfolio’s original asset allocation.

RBST has been listed on Cboe BZX Exchange with an expense ratio of 0.97%. The fund’s investment adviser is Toroso Investments with Newfound Research serving as sub-adviser.

Newfound Research’s second Return Stacked ETF, which is expected to debut in the near future, will seek to provide capital efficient-exposure to both equities and core fixed income. Specifically, every dollar invested in the fund will provide $0.90 exposure to global equities and $0.60 exposure to US Treasuries.

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