Podcast Summary: Money For the Rest of Us

Episode 551: "What Average Really Looks Like — and Can Managed Futures Help?"

Host: J. David Stein
Date: February 25, 2026

Overview

In this episode, J. David Stein examines the reality behind average investment returns, especially as revealed by the latest (2025) NACUBO endowment study, and what that means for realistic expectations for individual investors. In the second half, he does a deep dive into Managed Futures: what they are, how they behave during market turmoil, whether they help diversify portfolios, the challenges in their long-term performance, and practical approaches to incorporating them into a portfolio.

Key Discussion Points & Insights

1. University Endowment Performance: “What Average Really Looks Like”

• NACUBO Study Results (00:50)

  • Over the past 25 years (June 2000–June 2025), average university endowment annualized returns were about 6.6%; over 20 years, 7.3%.
  • Despite having sophisticated staff, committees, and access to premier funds and strategies, top university endowments did not achieve double-digit returns.

• Why Are Returns 'Average'? (04:13)

  • Starting Valuations Matter:
    • "The fact that starting valuations matter. When we look at how the stock market, US and global stocks were valued in June 2005, that makes a difference..." (04:13)
  • Stock P/E ratios and bond yields in previous decades were lower than today, impacting long-term returns.

• Return Targets & Spending (07:25)

  • Average endowment targets 7.3% returns, based on expected spending (~4.9%) and aiming for long-term inflation protection (~2.4%).

• Asset Allocation Insights (08:40)

  • Average allocation: 31% equities, 45% alternatives (like private capital/hedge funds), 11% fixed income, 10% real assets.
  • Larger endowments (> $1B) have more in private capital; mid-sized ones favor more public equities and less in alternatives.

• The Princeton Example (09:45)

  • "Princeton University cuts expectation for endowment returns... lowering its return expectation from 10.2% to 8%. And even that assumption... might be considered aggressive."
    — Quoting President Christopher Eisgruber (10:02)
  • Asserts that double-digit targets are unrealistic; "Princeton has just come down to what is normal" (10:30).

• Personal Experience with Private Capital (13:00)

  • Stein shares returns from his own commitment to private capital funds: internal rate of return (IRR) just 4.6% overall; global private equity did ~9.3%; private debt 6.2%; real assets 3.6%.

  • "That's a long time to have your capital locked up for money market type returns." — Stein quoting a friend on private funds’ mediocre performance (15:00)

  • Further, time-weighted returns on private funds are typically lower than the IRR reported.

2. Current Headwinds in Private Capital

• Liquidity & Gating Issues (17:00)

  • Private debt funds “gating”—limiting withdrawals—as some software companies (a common private equity target) face challenges, partly due to AI disruptions and high leverage.
  • "There's a great deal of concern right now in the software space because of AI... is that going to make those software companies more difficult to operate?" (18:00)
  • Example: Eagle Point Income Co. (EIC) closed-end fund down ~30% in six months, yielding 17%—a cautionary tale.

• Managing Disappointments

  • Warns against panic selling after losses; advises re-examining investment theses as situations evolve.

3. Deep Dive: Managed Futures (Post-Sponsor Segment)

What Are Managed Futures? (28:30)

• Involves managers taking long and short positions in various futures markets: commodities, interest rates, currencies, equity indexes.

• Trend-following/momentum-driven strategies—profit from persistent price movements.

• "They tend to see strong performance during extreme markets... That's when managed futures strategies tend to do the best." (30:25)

Performance Case Studies

• Strong in Crises/Bear Markets (30:40–32:28)

  • Managed futures produced exceptional returns in 2022 (some ETFs +30%)—capitalizing on market dislocations (strong $USD, oil spikes, equity and bond selloffs).
  • In "sideways" or trendless markets, managed futures struggle.

• Long-Term Results: Are They Good Enough? (32:55)

  • AQR Managed Futures Fund (AQMIX):

    • Launched 2010; 4.1% annualized. Outstanding in 2022 (+35%), but otherwise underwhelming.

  • WisdomTree Managed Futures ETF (WTMF):

    • Since 2011, 0.8% annualized. Missed the 2022 crisis—returned -6.5% that year.

  • First Trust Managed Futures ETF (FMF):

    • Since 2013, 1.8% annualized; 5.2% in 2022.

  • "So that's one of the challenges with managed futures: when there are some persistent trends, that doesn't necessarily mean the manager is going to get positioned correctly." (34:00)

Newer Competitors with Better Track Records (36:00)

• IMGP DBi Managed Futures Strategy ETF (DBMF):

  • Since 2019, 9.6% annualized; +21.5% in 2022.
  • Negative correlation to stocks/bonds (offers meaningful diversification).
  • Higher volatility than bonds but less than stocks.
  • "Maybe DBMF... maybe they're the exception. They are now the largest ETF in the managed futures space. And if you've invested in that, it's done well. Will it continue to do so? I don't know." (43:28)

• Kraneshares Mount Lucas Managed Futures ETF (KMLM):

  • Started in 2020; 6.1% annualized, +30% in 2022.

Behavioral Challenge of Managed Futures (41:40)

• "It takes patience. You can have years of slightly negative losses... you're just waiting for that one year."
• Managed futures likened to “portfolio insurance”—most valuable during markets in turmoil, but hard to stick with in flat years.

4. Return Stacking & 'Portable Alpha' Strategies (44:00)

• Return Stacking:

  • Using futures to layer managed futures returns atop an equity portfolio, instead of allocating away from equities or bonds.
  • Increases leverage/complexity and requires managed futures returns to meaningfully exceed the 'risk-free rate'.

• Example: Return Stacked U.S. Stocks & Managed Futures ETF (RSST)

  • Launched 2020; since inception, underperformed pure equities: S&P 500 ~20.4%, RSST ~18.7% annualized.

  • "It's not always easy to do these portable alpha strategies... usually the risk-free rate eats part of the return. You need that layer to do better." (45:20)

• Caution on Complexity

  • Stein highlights the complexity and sometimes disappointing real-world results of these strategies.

Notable Quotes & Memorable Moments

• On Realistic Return Expectations:

  • "The biggest takeaway from this episode is we need reasonable return expectations. When we see sophisticated universities lowering their return expectations and achieving 6 to 7% annualized return... that tells us that's what we should model in our own retirement planning..." (46:30)

• On the Lure of Managed Futures:

  • "There is something attractive about managed futures. Low correlation, has done well most recently when stocks sold off, when bonds sold off, that’s when they shine." (43:00)

• On Portfolio Insurance:

  • "It's almost like an insurance policy... you're hoping that when the stock market is down, when the bond market is down... managed futures can perform opposite." (37:11)

Timestamps for Important Segments

| Timestamp | Segment Description | |-----------|----------------------------------------------------------------------------------------------| | 00:50 | NACUBO study introduction; average endowment returns | | 04:13 | Why returns are only 'meh'—the importance of starting valuations | | 07:25 | How endowments set return targets, calculate spending/inflation | | 09:45 | Princeton’s return target revision and private equity exposure | | 13:00 | Stein’s personal private capital experience and disappointing results | | 17:00 | Private capital liquidity concerns, software/AI exposure; gating and spillover to other funds| | 28:30 | What are managed futures? Explaining the strategy | | 30:25 | Managed futures during crisis markets—they profit from extremes | | 32:55 | Long-term track record of managed futures strategies and funds | | 36:00 | Newer, better-performing managed futures ETFs (DBMF, KMLM) | | 41:40 | The behavioral challenge: patience is key | | 44:00 | Return stacking / portable alpha explained | | 46:30 | The episode’s bottom line: have reasonable expectations; model 6–7% returns |

Conclusion & Takeaways

• Average really is average: Even the world’s best-endowed, most sophisticated portfolios generally deliver mid-to-upper single digit returns over long periods. Expect the same, not more, as an individual.
• Private capital often underwhelms: Access and patience do not guarantee extraordinary results, especially as the best opportunities become more widely available and liquidity issues mount.
• Managed futures can help—but require context: Useful as crisis insurance when markets tumble, but difficult to stick with during flat years. Returns are inconsistent and not all funds deliver when it counts.
• Return stacking adds complexity: It’s appealing but often tricky in practice and may not improve results after accounting for risk and costs.
• Plan with humility:
  • "We need reasonable return expectations." (46:30)
  • Focus on building robust portfolios and planning for a range of outcomes—some of them, very average.

End of summary.