KMLM
KMLM
What Is KMLM?
KMLM is a systematic managed futures ETF that tracks the KFA MLM Index, established by Mount Lucas Management in 1988 as the first passive index to measure returns to risk bearing in futures markets. The index applies a rules-based trend-following methodology across 22 liquid futures contracts:
- 11 Commodities: Crude oil, natural gas, heating oil, gasoline, gold, copper, corn, soybeans, wheat, sugar, live cattle
- 6 Currencies: Euro, British pound, Japanese yen, Swiss franc, Canadian dollar, Australian dollar
- 5 Global Bonds: US 10-year Treasury, Euro bund, Japanese government bond, Canadian government bond, UK long gilt
Uniquely among managed futures ETFs, KMLM excludes equity futures entirely, making it a purer diversifier for equity-heavy portfolios. Positions are sized based on relative historical volatility and rebalanced monthly.
How Trend-Following Works
The KFA MLM Index uses a simple but powerful signal: when a market is trending up, go long; when trending down, go short. This systematic approach captures the price risk premium that hedgers pay to transfer risk to speculators. Key characteristics:
- Long AND short: Profits from both rising and falling markets
- Go-anywhere: Trades across commodities, currencies, and bonds simultaneously
- Low correlation to stocks & bonds: ~0.25 correlation to SPY (beta -0.30)
- Crisis alpha: Historically strong in market dislocations (2008 GFC, 2022)
Annual Distribution Mechanism
KMLM distributes 100% of net realized gains annually, typically in December. This creates a variable distribution — large in strong trend years (2022: $4.04/share), small or none in flat years. The trailing distribution of $1.30/share (4.44% yield) reflects the moderate 2024/2025 environment.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Commodities (11 contracts) | $0M | 42% | +9.2% | — | Q1 2026: +9.2% — energy & metals trending |
| Currencies (6 contracts) | $0M | 29% | -0.1% | — | Q1 2026: -0.1% — range-bound FX markets |
| Global Fixed Income (5 contracts) | $0M | 29% | -1.9% | — | Q1 2026: -1.9% — bond trend reversal |
| Blended Growth Rate | — | 100% | +3.3% | — | Weighted avg across segments |
| Metric | Value | Assessment |
|---|---|---|
| Revenue Trend | Mixed | 3-year directional trend |
| FCF Margin Trend | Stable (±1pp) | Directional margin trajectory |
| Analyst Revisions | Neutral | Last 90 days consensus direction |
| Metric | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|
| Revenue ($M) | $210 | $306 | $295 | $302 |
| Rev YoY Growth | — | +45.7% | -3.6% | +2.4% |
| Gross Margin | — | — | — | — |
| EBITDA ($M) | — | — | — | — |
| EBITDA Margin | — | — | — | — |
| Operating Income ($M) | — | — | — | — |
| Operating Margin | — | — | — | — |
| Net Income ($M) | — | — | — | — |
| Net Margin | — | — | — | — |
| EPS (diluted) | $25.18 | $29.47 | $27.80 | $28.55 |
| Free Cash Flow ($M) | $0 | $0 | $0 | $0 |
| Annual DPS | $1.838 | $4.038 | $0.230 | $0.230 |
| Total Debt ($M) | $0 | $0 | $0 | $0 |
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.30% | 10-yr US Treasury yield |
| Beta (β) | -0.300 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 4.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 6.50% | Ke = Rf + β × ERP |
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | Ke | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | -3.0% | -1.0% | 0.5% | 6.50% | $18 | ▼39.6% |
| 📊 Base | 4.0% | 2.5% | 1.5% | 6.50% | $31 | ▲4.2% |
| 🚀 Bull | 7.0% | 4.0% | 2.5% | 6.50% | $43 | ▲46.8% |
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $1.261 | $1.184 | $1.18 |
| Year 2 | Stage 1 | $1.223 | $1.078 | $2.26 |
| Year 3 | Stage 1 | $1.186 | $0.982 | $3.24 |
| Year 4 | Stage 1 | $1.151 | $0.895 | $4.14 |
| Year 5 | Stage 1 | $1.116 | $0.815 | $4.95 |
| Year 6 | Stage 2 | $1.105 | $0.757 | $5.71 |
| Year 7 | Stage 2 | $1.094 | $0.704 | $6.42 |
| Year 8 | Stage 2 | $1.083 | $0.655 | $7.07 |
| Year 9 | Stage 2 | $1.072 | $0.608 | $7.68 |
| Year 10 | Stage 2 | $1.062 | $0.566 | $8.24 |
| Terminal | — | TV=$17.78 | PV(TV)=$9.47 (53% of IV) | $17.72 |
| Intrinsic Value | — | — | PV(Divs) $8.24 + PV(TV) $9.47 | $17.72 |
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $1.352 | $1.269 | $1.27 |
| Year 2 | Stage 1 | $1.406 | $1.240 | $2.51 |
| Year 3 | Stage 1 | $1.462 | $1.211 | $3.72 |
| Year 4 | Stage 1 | $1.521 | $1.182 | $4.90 |
| Year 5 | Stage 1 | $1.582 | $1.154 | $6.06 |
| Year 6 | Stage 2 | $1.621 | $1.111 | $7.17 |
| Year 7 | Stage 2 | $1.662 | $1.069 | $8.24 |
| Year 8 | Stage 2 | $1.703 | $1.029 | $9.27 |
| Year 9 | Stage 2 | $1.746 | $0.991 | $10.26 |
| Year 10 | Stage 2 | $1.789 | $0.953 | $11.21 |
| Terminal | — | TV=$36.33 | PV(TV)=$19.35 (63% of IV) | $30.56 |
| Intrinsic Value | — | — | PV(Divs) $11.21 + PV(TV) $19.35 | $30.56 |
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $1.391 | $1.306 | $1.31 |
| Year 2 | Stage 1 | $1.488 | $1.312 | $2.62 |
| Year 3 | Stage 1 | $1.593 | $1.318 | $3.94 |
| Year 4 | Stage 1 | $1.704 | $1.325 | $5.26 |
| Year 5 | Stage 1 | $1.823 | $1.331 | $6.59 |
| Year 6 | Stage 2 | $1.896 | $1.300 | $7.89 |
| Year 7 | Stage 2 | $1.972 | $1.269 | $9.16 |
| Year 8 | Stage 2 | $2.051 | $1.239 | $10.40 |
| Year 9 | Stage 2 | $2.133 | $1.210 | $11.61 |
| Year 10 | Stage 2 | $2.218 | $1.182 | $12.79 |
| Terminal | — | TV=$56.85 | PV(TV)=$30.28 (70% of IV) | $43.07 |
| Intrinsic Value | — | — | PV(Divs) $12.79 + PV(TV) $30.28 | $43.07 |
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 4.5% | $51 | $59 | $71 | $92 | $132 |
| 5.0% | $44 | $49 | $57 | $69 | $88 |
| 5.5% | $38 | $42 | $48 | $55 | $66 |
| 6.0% | $34 | $37 | $41 | $46 | $53 |
| 6.5% | $31 | $33 | $36 | $39 | $44 |
| 7.0% | $28 | $29 | $32 | $34 | $38 |
| 7.5% | $25 | $27 | $28 | $31 | $33 |
| 8.0% | $23 | $25 | $26 | $28 | $29 |
| 8.5% | $22 | $23 | $24 | $25 | $27 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
| ETF | Strategy | Expense Ratio | AUM | Yield | 2022 Return | Inception | Equity Futures? |
|---|---|---|---|---|---|---|---|
| KMLM | KFA MLM Index (pure trend) | 0.90% | $307M | 4.44% | +30.4% | Dec 2020 | No |
| DBMF | SG CTA Replication | 0.85% | $4.1B | 4.80% | +15.2% | May 2019 | Yes |
| CTA | SG CTA Select | 1.00% | $140M | 5.10% | +12.8% | Aug 2022 | Yes |
| WTMF | Windham Multi-Strategy | 0.95% | $80M | 3.50% | +8.5% | Nov 2023 | Yes |
| Metric | Value |
|---|---|
| Annual DPS | $1.300 |
| Current Yield | 4.44% |
| Consecutive Growth Years | 0 |
| 1-yr DPS CAGR | +466.0% |
| 3-yr DPS CAGR | N/A |
| 5-yr DPS CAGR | N/A |
| 10-yr DPS CAGR | — |
| Payout Ratio (DPS/EPS) | N/M (negative earnings) |
| FCF Payout Ratio | 100.0% ⚠️ |
| Sustainability Verdict | Variable — depends on trend regime |
Why Own KMLM?
KMLM is not a stock — it's a portfolio diversifier that earns its place through what it prevents as much as what it produces. The case rests on four pillars:
1. Crisis Alpha
The KFA MLM Index has delivered its strongest returns during market dislocations. In 2008, while equities lost ~37%, the MLM Index generated positive returns as it caught bond and commodity trends. In 2022, when both stocks AND bonds fell simultaneously, KMLM returned +30.4% (price) / +16.9% (total). This is the asset's defining characteristic — it pays off when you need it most.
2. Zero Equity Correlation
Unlike DBMF and CTA which include equity futures in their universe, KMLM restricts itself to commodities, currencies, and bonds. This gives it a correlation of just ~0.25 with the S&P 500 (beta: -0.30). In a 60/40 portfolio, adding a 20% allocation to managed futures (60/20/20 construction) has historically improved Sharpe ratios by 15–25%.
3. Long-Run Return Generation
The KFA MLM Index has averaged ~10% annual total returns since 1988 — competitive with equities but with radically different risk characteristics. The "price risk premium" in futures markets is structural: hedgers (producers, consumers) pay speculators (trend-followers) to assume price risk. This premium persists across market cycles.
4. Distribution Income
KMLM's annual distribution (100% of net gains) provides a variable but meaningful income stream. Over the long run, distributions have averaged 5–8% of NAV. The current 4.44% yield is below the long-term average, suggesting room for improvement as trend regimes normalize.
Key Risks
- Whipsaw/mean-reversion: Choppy, directionless markets destroy trend-following returns (2023: -5.7%, 2024: -1.7%). Extended range-bound periods are the primary risk.
- High expense ratio: At 0.90%, KMLM is more expensive than DBMF (0.85%). The pure-trend exposure justifies some premium, but the gap matters.
- Small AUM: $307M AUM vs DBMF's $4.1B. Lower liquidity, wider spreads, higher closure risk. KraneShares has committed to the product, but AUM remains a concern.
- Variable distributions: The $4.04 distribution in 2022 followed by $0.23 in 2023 illustrates the extreme variability. Income-focused investors should not rely on the trailing yield as a forward estimate.
- Model risk: Trend-following is a simple, robust strategy, but it can underperform for multi-year stretches. The 2023–2025 period has been challenging.
Portfolio Construction View
KMLM is best evaluated not on a standalone basis but on its marginal contribution to portfolio efficiency. The 60/20/20 portfolio (stocks/bonds/managed futures) that KraneShares advocates has historical backing:
- 60% S&P 500 / 20% US Agg Bond / 20% MLM Index backtested 1988–2025
- Higher Sharpe ratio than 60/40 in virtually all rolling 10-year periods
- Max drawdown reduced by ~40% vs 60/40
- Positive returns in 80%+ of calendar years
Founder-led company — strategy and culture deeply tied to a single individual. Succession planning is a material risk.
See the company profile for KraneShares Mount Lucas Managed Futures Index Strategy ETF (KMLM) including business summary, industry/sector information, number of employees, business summary, corporate governance, key executives and their com
Access to managed futures through a liquid and low-cost ETF structure1 · Managed futures are considered alternative investments and may provide additional diversification and decrease volatility when included within traditional equity/bond
Latest KraneShares Mount Lucas Managed Futures Index Strategy ETF (KMLM:PCQ:USD) share price with interactive charts, historical prices, comparative analysis, forecasts, business profile and more.
Managed futures are considered alternative investments and may provide additional diversification* and decrease volatility when included within traditional equity/bond portfolios. KMLM may also serve as a potential hedge on equity, bond, an
Managed futures are considered alternative investments and may provide additional diversification and decrease volatility when included within traditional equity/bond portfolios** A potential hedge on equity, bond, and commodity risk · Sub-
The investment seeks to provide investment results that, before fees and expenses, track the price performance of the KFA MLM Index (the “index”). The fund seeks to achieve its goal by investing in commodity, currency, and global fixed inco
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$28 | Begin position |
| Tier 2 — Add | ≤$26 | Add on weakness |
| Tier 3 — Full | ≤$25 | Full allocation |
| Sell Alert | ≥$35 | Above fair value — consider trimming |
Verdict: Hold. KMLM at $29.34 trades at NAV — fairly valued by ETF arbitrage mechanics. The recommendation is not based on mispricing but on strategic portfolio value.
The Bore Family Office currently holds 2,085 shares at an average cost of $35.92, representing an unrealized loss of ~18%. While painful, this position was likely initiated during the 2022 trend-following peak. The strategy itself remains sound — the 2023–2025 underperformance reflects a difficult regime (range-bound commodities, volatile FX, shifting bond trends), not a structural breakdown of trend-following.
Action items:
- Hold the existing position — do not sell at a loss into a potentially transitioning regime
- Add on weakness below $27 (near 52-week low) to lower the average cost basis
- Target a 5% portfolio allocation to managed futures for diversification benefit
- Monitor Q1 2026's +8.3% return as a potential inflection signal
- Re-evaluate if KMLM underperforms for 3+ consecutive years (structural regime shift)
| Metric | Value |
|---|---|
| Shares Held | 2,085 |
| Average Cost Basis | $35.92 |
| Current Market Value | $61,174 |
| Unrealized P&L | $-13,719 (-18.3%) |
| Annual DPS | $1.300/yr |
| Annual Dividend Income | $2,710/yr |
| Current Yield (at price) | 4.43% |
| Yield on Cost | 3.62% |
| vs Target (~$200K) | $61,174 / $200,000 (31%) |
| Assumption | Rationale / Notes |
|---|---|
| ETF Valuation Framework | KMLM is a managed futures ETF — not a traditional equity. Standard DCF/DDM models are adapted here. We use a DDM-like distribution discounting model because KMLM's value to shareholders comes from its annual distribution stream. However, the "intrinsic value" derived should be interpreted as a distribution value, not a traditional equity IV. ETFs trade at NAV by construction (creation/redemption arbitrage), so the primary question is whether the strategy adds value to the portfolio, not whether the ETF is mispriced. |
| Required Return (Ke = 7.5%) | The 7.5% required return is lower than a typical equity Ke (~9–10%) because: (1) KMLM has near-zero correlation to equities (beta -0.30), reducing portfolio-level risk; (2) Strategy volatility (~15% annualized) is equity-like but uncorrelated, so the diversification-adjusted required return is lower; (3) Rf = 4.3% + reduced ERP of 5.5% (lower than the 5.5% equity ERP due to non-equity nature). |
| Distribution Growth Assumptions | Bear (-5%/yr): Extended whipsaw regime, distributions shrink as trend signals fail. Base (+2%/yr): Long-run average — distributions grow near inflation rate. Bull (+6%/yr): Sustained trend regime (commodity super-cycle, persistent FX/bond trends). The KFA MLM Index has averaged ~10% total return since 1988, with median annual return ~6.7%. Distributions average ~5–8% of NAV historically. |
| Sanity Check Override | This report uses sanity_check_override=True because KMLM is an ETF trading at NAV. The traditional "analyst PT vs IV" sanity check doesn't apply — ETFs are fairly valued by arbitrage. The value question for KMLM is strategic (does trend-following add portfolio value?), not pricing (is the ETF above/below NAV?). |
| Q1 2026 Inflection Signal | KMLM returned +8.3% in Q1 2026 (Commodities +9.2%, Currencies -0.1%, Bonds -1.9%). This strong start after two years of underperformance (2023: -5.7%, 2024: -1.7%) may signal a regime shift toward more favorable trending conditions. The index increased long positions in oil/commodities and shifted bonds to net short as inflation expectations rose — classic trend-following positioning. |