Portable alpha has long been an institutional strategy for enhancing returns and improving diversification, but return stacking has made this approach accessible to financial advisors. By maintaining full equity exposure while layering a managed futures overlay, investors can potentially improve risk-adjusted returns without sacrificing market participation. This article breaks down the mechanics of a 100% equities + 100% managed futures approach, highlighting how managed futures can enhance portfolio resilience, reduce drawdowns, and offer uncorrelated return streams. Learn how financial advisors can implement this institutional-grade strategy to build more robust client portfolios.

Enhancing Equity Portfolios with a Managed Futures Overlay

For decades, institutional investors have used portable alpha strategies to improve diversification and enhance risk-adjusted returns. These strategies allow investors to maintain full market exposure while layering additional, uncorrelated return streams on top. Historically, portable alpha was difficult for individual investors to implement due to the complexity and costs associated with hedge funds and derivatives strategies. However, return stacking has now democratized this approach, making it accessible to financial advisors and their clients.

Managed futures, when used as an overlay, offers a compelling way to execute a portable alpha strategy. By maintaining a 100% exposure to equities while adding a 100% exposure to managed futures, investors can include diversifiers in their portfolios without sacrificing core market participation. This allows for enhanced return potential while simultaneously reducing portfolio volatility.

The Role of Managed Futures in Portable Alpha

Managed futures are an attractive choice for a portable alpha overlay due to their low correlation with equities, historical performance during crisis periods, and ability to generate positive returns in diverse market environments. Unlike traditional diversifiers such as bonds, which may experience correlated losses during certain equity drawdowns, managed futures strategies thrive in volatile and trending markets.

Unlike many alternative strategies, managed futures rely on systematic, trend-following models that can take both long and short positions across various asset classes—including equities, bonds, commodities, and currencies—allowing them to profit in both rising and falling markets. This adaptability makes them one of the most effective tools for reducing portfolio drawdowns while maintaining long-term upside potential.

By integrating managed futures as an overlay on equities, advisors can maintain full market exposure while gaining significant diversification benefits. This reduces overall portfolio volatility, enhances resilience, and allows for smoother investment experiences for clients who struggle with traditional diversification approaches.

Historical Performance: Historical Diversification Benefits of Managed Futures

Source: Bloomberg. Managed Futures is the SG Trend Index (”NEIXCTAT”). 100% Equities + 100% Managed Futures is 100% S&P 500 Total Return Index (”SPXT”) / 100% NEIXCTAT / -100% Bloomberg Short-Term US Treasury Bill Index (”LD12TRUU”) rebalanced monthly. Past performance is not indicative of future results. Performance is gross of all fees, taxes, and transaction costs. Performance assumes the reinvestment of all distributions. Performance of Managed Futures is net of underlying management and performance fees. Investors cannot invest directly in an index. Performance data is for illustrative purposes only and does not represent actual returns of a specific fund or investment product.

Portable alpha, when applied through return stacking, allows investors to capture the diversification benefits of managed futures while maintaining full equity participation. Historically, this has resulted in improved risk-adjusted returns and reduced drawdowns during market crises.

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