The KraneShares Mount Lucas Managed Futures Index Strategy ETF, trading under NYSEARCA:KMLM, recently advertised a 5% dividend yield from its latest annual distribution. This figure, however, comes with significant instability in its payouts and poor overall performance for investors seeking income.
KMLM does not operate like typical dividend-focused ETFs. It follows the KFA Mount Lucas Index through a managed futures strategy that invests in 22 futures contracts across commodities, currencies, and global fixed income. The fund's distributions are derived from trading gains in these futures positions, not from stock dividends. These payouts rise when the strategy successfully captures price trends but drop sharply when markets reverse or remain flat.
Historical data shows extreme fluctuations in the fund's distributions. Last December saw a surge compared to the previous year, yet it remained well below the peak reached in 2022 during strong commodity trends. This volatility is inherent to the fund's reliance on futures market trends.
Total returns over the past year were just 2.5%, combining dividends with price changes. During the same period, the S&P 500 returned nearly eight times more, highlighting a substantial performance gap. The fund's design as a crisis hedge for portfolio diversification conflicts with its use as a stable income source.
For those interested in managed futures exposure, the iMGP DBi Managed Futures Strategy ETF, listed as BATS:DBMF, presents an alternative. With $2 billion in assets versus KMLM's $170 million, DBMF offers better liquidity and has shown less extreme distribution volatility. It provides a yield near 4% and uses simpler 1099 tax reporting instead of K-1 forms.
KMLM's 5% yield appears attractive only if one overlooks its unstable payout history and weak total returns. Managed futures are typically suited for small portfolio allocations as diversifiers, not as core income generators.