First Trust Managed Futures Strategy Fund (FMF)

“In markets, the trend is your friend until the end.” Managed futures strategies are built on this idea—the observation that prices across diverse markets (stocks, bonds, commodities, currencies) tend to move in persisting trends, and that systematic methods can profit from those trends.

Managed futures is an old category of investment given new life by ETFs. The strategy itself has roots in commodity trading advisors (CTAs) and hedge funds that emerged in the 1970s and 1980s, operating largely offshore and open only to wealthy investors. The First Trust Managed Futures Strategy Fund brings this approach to a liquid, public ETF accessible to any investor.

What makes FMF different from a traditional stock or bond ETF is that it does not own companies or lend money. Instead, it trades financial futures contracts—agreements to buy or sell an asset at a set price on a future date. The fund’s systematic strategies (or, in some cases, a professional CTA that First Trust selects as the underlying manager) analyze price momentum and trend strength across dozens of markets: U.S. stock index futures (tracking the S&P 500, Nasdaq, Russell 2000), U.S. Treasury futures (bonds of different maturities), commodity futures (crude oil, natural gas, gold, agricultural products), and currency futures (the dollar against major currencies). When the system detects a strong uptrend, it takes a long position (betting the price will continue rising). When it detects a downtrend, it goes short (betting the price will continue falling) or moves to cash.

The appeal is diversification of a different flavor. Traditional diversification combines stocks and bonds, assuming they move somewhat independently. But in market crises, stocks and bonds can both fall sharply, violating that assumption. Managed futures aim to provide returns that are genuinely uncorrelated—in up markets, down markets, sideways markets. Because the strategy profits from trends in both directions, it can earn money when stocks crash if commodity or currency trends are strong in the opposite direction. Historical data suggests that managed futures have provided some hedge against stock-market crashes, though the benefit is not automatic and varies with market regime.

The mechanics are systematic and transparent. FMF or its underlying CTA apply a rules-based algorithm: measure the trend strength in each market, take positions proportional to that strength, rebalance periodically as trends change. There is no stock-picking, no macroeconomic forecasting, no attempt to call market tops and bottoms. The system is indifferent to whether the position is right or wrong; it simply follows the rules. This mechanical discipline removes human emotion and has been shown (at least in historical backtests) to reduce the damage from large, sudden market moves.

The real risks are subtly different from equity funds. First, trend-following strategies can suffer in choppy, mean-reverting markets—environments where prices oscillate up and down without clear directional persistence. In such markets, a strategy that buys rallies and sells declines will be whipsawed. Second, the strategy relies on having diversified underlying markets to trade; if all futures markets move together (as sometimes happens in truly systemic crises), the diversification benefit evaporates. Third, leverage is often employed—trading futures allows you to control large positions with modest capital, amplifying both gains and losses. This means a bad trend-following year can be sharply painful.

Costs also matter. FMF’s expense ratio is higher than a passive stock or bond ETF—typically in the 0.75 to 1.25 percent range—because it involves active trading, systematic analysis, and frequent rebalancing. Over decades, that cost accumulates. An investor considering FMF should ask: Am I convinced that the benefits of non-correlated returns and crisis hedging justify paying active-fund fees over a long holding period? The fund is best understood as a satellite position, perhaps 10 to 20 percent of a portfolio, not as a core holding. It appeals to investors who have lived through a sharp stock-market crash and want genuine diversification that might actually protect them in the next one, not just in theory.