Abnormal Returns included this link about managed futures in its post today. It doesn't offer anything new but I thought of a way to look at them versus what we've done before. I mentioned once before that Testfol.io can go back to 1987 with simulated KMLM.
The chart does a good job of explaining the potential benefit of managed futures. You need to look closely in some instances but KMLMsim diverges from the S&P 500 and 60/40 at almost every negative turn.
Since then, it's been less reliable.
From Jan 1 2008 to now, KMLMsim has compounded at 3.42% versus 11.30% for SPY and 8.43% for 60/40. A long time ago at other URLs for my blog I theorized that T-bill rates at zero or close to it hurts managed futures. Managed futures funds hold a lot of T-bills so for much of the period in the bar chart when rates were very low, there was 300-400 basis points of T-bill interest those funds weren't getting. When I was side-gigging with AdvisorShares I had opportunities to ask people about my theory and was routinely told it wasn't a factor. It was a factor.
T-bills now have yield. Of course T-bills had yield in 2023, 2024 and 2025. Obviously yield is not the only factor driving returns, if it was, there'd be no argument to own managed futures. Holding managed futures in that recent three year period meant riding out a combo of whipsaws and choppiness which are both obstacles for the strategy. If that's too many excuses then you probably aren't interest in managed futures.
The other thing today is that I wanted to dig in a little on the Innovator Equity Managed Floor ETF (SFLR). It's in the neighborhood of being a buffer fund but it's also the opposite of a buffer fund. Instead of protecting against the first 9% maybe or 15% down, exposing holders the the decline beyond that first 9%, 15% or whatever the objective is, SFLR offers no protection against the first 10% down, the floor so to speak, but then offers protection against for the rest of the way down after the first 10%.
Except when it doesn't.
The fund puts on an option combo. This is from the most recent fact sheet. Obviously it is stale but you can see that it sells calls to pay for a ladder of puts.
The fund is at risk of "not working" in a long drawn out decline like 2000-2002. Gemini worked through an example where it thought SFLR would have been down 30-35% versus 50% for the S&P 500. The reason has to do with how the market kept going down and the new puts that were purchased along the way were at lower strike prices giving more room to the downside. The 10% floor would have kept getting set lower.
The other type of scenario flagged was a very fast decline and snapback. Depending on when that happens in relation to when the calls expired, the fund could miss out on the snapback. None of that has happened so far though.
Once you realize that this will not keep up with the S&P 500 when the S&P 500 is up a lot, it becomes easier to accept SFLR has had a very good result.
Generally speaking, including a fund that could have decent upside, not full but decent, while helping to bring down the portfolio's volatility is a valid approach stressing having the correct expectations. It will not have full upcapture.
Going full floor or full buffer is probably a bad idea. In the 2000-2002 scenario, it would be easy to think the fund wasn't working correctly and give up at the bottom. Having the correct expectations includes understanding these funds relying on options combos to deliver some sort of managed result are not infallible. SFLR might be a good fund but it's not a riskless fund.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
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