How Much Should You Allocate to Managed Futures?

10%! More? 20%! More? 30%! Even More? 

January 2025. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • CTAs have achieved equities-like returns over the long-term
  • They are excellent diversifiers given low correlations to equities
  • An optimal allocation would be more than 50% within an equities portfolio

INTRODUCTION

In December 2024, BlackRock filed a draft prospectus for the iShares Managed Futures Active ETF, aiming to tap into investor demand fueled by the strong performance of CTAs over the past five years. Although BlackRock’s entry follows earlier launches by firms like AlphaSimplex and MAN AHL, ETF assets in this space remain modest at under $3 billion. In contrast, the broader CTA industry manages around $340 billion as of Q3 2024, according to BarclayHedge, indicating substantial growth potential for low-cost ETFs.

Despite their appeal, managed futures often carry a perception of being “black-box” strategies, which can make some investors uneasy. However, as demonstrated in our previous research, these strategies simply employ trend-following across various asset classes and are relatively straightforward to replicate (read Replicating a CTA via Factor Exposures and Creating a CTA from Scratch – II).

The true attraction of managed futures lies in their flexibility—allowing investors to admit uncertainty about the direction of interest rates, inflation, commodities, currencies, or equities, while still capturing returns whether markets rise or fall.

While extensive research supports their value as diversifying tools, there is limited guidance on how much investors should allocate to them—a topic we explore further in this article.

LONG-TERM PERFORMANCE OF MANAGED FUTURES

Using data from AQR, we analyze the performance of managed futures from 1926 to 2024, covering nearly a century. Returns from 1926 to 2013 are based on a backtest by AQR and should be interpreted with caution that applies to all backtests, while post-2013 performance reflects actual returns from AQR’s Managed Futures Strategy Fund (AQMIX).