It’s no secret that we’re not fans of managed futures mutual funds (mainly due to their mis-categorization and high fees), but we’re not obstinate. We dialed into a Morningstar webinar today regarding the vehicles to learn a little more, and were pleased to hear some blunt talk about the fee levels associated with the funds. However, when we asked explicitly what criteria was used to determine whether a fund was a managed futures mutual fund, the answer we got was that they look at the strategy, and require the product to take both long and short positions in commodities and/or securities. As in stocks, ETFs, and so on.

Ah, now we understand why funds like the Pyxis Trend Following Fund – which, per their prospectus, trades stock index ETFs – made the cut. Unfortunately, the Morningstar definition of managed futures has nothing to do with managed futures at all.

For the record, managed futures is not  individual stocks or indices. It’s not ETFs. It’s futures trading. There is a huge array of strategies out there in the managed futures world, but at the end of the day, there is one common thread: futures. It’s part of the reason that managed futures as an asset class has been non-correlated to traditional asset classes like stocks and bonds. These funds can call themselves whatever they like, but at the end of the day, a name will only get you so far. The presenters stated that there were more of these funds coming down the pipe, but we have to wonder how many of those will resemble managed futures at all, especially with the tense regulatory environment we see today.

Caveat Emptor, investors. Read the fine print. That’s all we have to say.