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Whatever Happened to the Managed Futures ETF?


History shows there are years when managed futures lag stocks, but over many years, managed futures are the winners.

Managed futures are an interesting if not inaccessible asset class to many investors. There is the allure of diversifying a portfolio into commodities without having to do the legwork yourself. And the historical outperformance of many managed futures funds against the S&P 500 is nothing to scoff at either.

But it's not all roses with managed futures because managed futures funds often feature large minimum investments that keep a lot of investors at bay. Fortunately, a rookie ETF changes things. That ETF is the WisdomTree Managed Futures (WDTI).

WDTI, which made its debut in January, invests in a combination of US Treasury futures, currency futures, nondeliverable currency forwards, commodity futures, commodity swaps, and US government and money market securities, and does so with an expense ratio of 0.95%.

That's high for any ETF, but chances are you'd pay a much higher rate to have a commodity trading adviser run a managed futures account for you. Even with the high expense ratio, WDTI has managed to attract almost $259 million in assets under management, making it one of the better new ETFs of 2011 by that metric.

WDTI is also a long/short fund. For example, the ETF is currently short gold and silver futures, but long oil, heating oil, natural gas, and gasoline futures. Other positions include short copper, corn, wheat, and soybeans and long lean hogs and live cattle.

All of this may sound fun, but WDTI is down about 8% this year while the much cheaper SPDR S&P 500 (SPY) is basically flat on the year. On the other hand, history shows there are years when managed futures lag stocks, but over many years, managed futures are the winners. And that probably explains why WDTI has done so well in attracting investor inflows.

Bull case: The WisdomTree Managed Futures ETF is certainly a novel concept, but one that has proven legitimate. As commodities become more important to more investors, the fund stands to cash in on that trend. As for performance, that's based on the fund managers accurately picking the proper long and short positions, right?

Bear case: Investors either pass on commodities altogether or pass on WDTI because of the high fees.

Editor's Note: This content was originally published on by The ETF Professor.

Below, find some more great ETF and market content from Benzinga:

By Paul Quintaro
By John Thorpe
By Scott Rubin
Twitter: @Benzinga
No positions in stocks mentioned.

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