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Summary
- The cost to roll futures has risen significantly over the past two years due to strong market performance and supply/demand.
- We see futures as a valuable tool when used for the right purposes—such as in a liquidity overlay capacity and when capital efficiency is needed, such as in an unfunded exposure. However, we believe that investors looking to maintain asset-class exposures for longer periods of time might want to consider using ETFs or physicals instead.
- Some of the advantages of ETFs include minimal tracking error to an index, strong liquidity, advantageous tax implications, and cheaper rolling costs than futures when held for longer periods of time.
- Some of the advantages of physicals include low holding costs and customizability. While they tend to be the most expensive to trade in the short-term, the low holding costs quickly make up for the initial transaction cost. Physicals are typically a great option for investors that expect to hold a position for several months (or more) with modest levels of turnover.
Richard Drury
In mid-2023, the estimated costs to roll S&P 500 futures on a quarterly cycle was roughly 0.40%, or 40 basis points (BPS) annualized – a fairly justifiable expense for most investors considering the benefits of the instrument.
Russell Investments is a leading global investment solutions firm with $326.9 billion in assets under management (as of 3/31/2021) and $2.8 trillion in assets under advisement (as of 12/31/2020) for clients in 32 countries, The firm provides a wide range of investment capabilities to institutional investors, financial intermediaries, and individual investors around the world. Building on an 85-year legacy of continuous innovation to deliver exceptional value to clients, Russell Investments works every day to improve people’s financial security. Headquartered in Seattle, Washington, Russell Investments has offices in 19 cities around the world, including in New York, London, Tokyo, and Shanghai. Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners, Russell Investments’ management and Hamilton Lane Incorporated.Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.
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