Managed-Futures Funds Look to Rebound. Can They Help Diversify Your Portfolio?

Managed-futures funds, also known as trend-following strategies, have faced a challenging stretch in recent markets. Over the three years through Aug. 31, 2025, the typical fund in the systematic trend Morningstar Category lost an annualized 2.3%. The tariff-driven market selloff earlier in the year took a notably high toll, resulting in a 5.8% loss in the first half of 2025 alone. A modest comeback tempered the decline, and the typical category constituent lost 3.6% for the year to date. Meanwhile, investors who stuck with a traditional broad market fund like Vanguard Balanced Index VBIAX gained an annualized 12.6% in the past three years and 8.8% for the year to date.

This recent underperformance can test the patience of investors, so it may be helpful to remember how these strategies operate and why their value is best measured over longer horizons.

Trend-following strategies typically use futures markets to benefit from trends across the global economy. These highly liquid futures markets allow managers to quickly enter and exit positions across areas like commodities, currencies, and stock indexes.

Systematic trend-following strategies often struggle in environments characterized by choppy prices and a lack of sustained directional moves across major asset classes. That’s especially the case for strategies like Virtus AlphaSimplex Managed Futures AMFAX, which includes allocations to shorter-term, often faster-moving underlying models. While more responsive investment models can help investors quickly reposition amid sudden market falls, they can lag slower-moving peers during market inflection points, especially when markets quickly whipsaw back and forth. Indeed, the fund’s 16.2% loss through August 2025 was among the worst in its category. The strategy’s relatively high volatility target of 12% long-term annualized standard deviation added to its roller-coaster experience. That higher volatility target, though, also enabled the fund to gain 35.4% in 2022, ranking it among the best in its group.

American Beacon AHL Managed Futures AHLAX also tends to focus on shorter-term market movements, using trends that average about two months. A shorter-term model can help preserve gains, as was the case in the first quarter of 2021 and the first half of 2022; both years, the fund delivered double-digit returns that beat most peers. However, when markets lack clear trends or reverse abruptly, the underlying quantitative models can struggle to generate consistent signals. Investors experienced this in 2025, when the fund’s year-to-date 8.9% loss ranked in its category’s bottom quartile.

But the strategy stands out over longer time horizons as a true diversifier from traditional asset classes. Since its August 2014 inception through August 2025, it had a negative 0.11 beta to the MSCI World Index, as well as a negative downside-capture ratio. This diversification benefit is especially valuable during market dislocations, inflationary shocks, or rising rate environments.

Abbey Capital Futures ABYAX takes a different tactic to managed futures by investing in the strategies of about a dozen subadvisors. Its core-satellite approach to portfolio construction allocates about two-thirds of assets to trend-following strategies and one-third to diversifying non-trend-following managers, like global macro and short-term traders. The blend of mandates makes for less rocky performance than what individual trend-followers may experience, as exhibited by the fund’s comparatively modest 4.5% loss for the year to date through August 2025. The fund’s diversifying characteristics shone in the market drawdowns seen in late 2018, early 2020, and most of 2022, when it outperformed the S&P 500 and MSCI ACWI.

Attempting to predict when these models will outperform is difficult and often counterproductive. Instead, their real strength emerges when held as a persistent allocation within a diversified portfolio. These strategies may not always shine, but their role as a diversifier makes them a valuable complement to more traditional holdings.

This article first appeared in the August 2025 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.