Investors who are looking for ways to diversify their portfolios can consider the benefits of a managed futures exchange traded fund strategy.
In the recent webcast, Is Your Portfolio Stuck in the Past? Look to Managed Futures, Andrew Beer, managing member, Dynamic Beta investments, noted that there may be many misconceptions about liquid alternatives. Some may find that liquid alternates are a confusing name for hundreds of confusing products, something that sounds great on paper but often works terribly in practice, or even an area where smart guys often look stupid.
On paper, something like managed futures can help provided greater diversification, or more bang for their invested buck. For example, managed futures exhibit a -0.04 correlation to equities and a 0.17 correlation to bonds. These strategies have outperformed during periods of heightened volatility, generating positive returns during severe sell-offs such as the volatile first half of 2022 and the COVID-19 pandemic.
Beer noted that the modern version of a managed futures futures strategy is capable of adapting to the shifting times and meeting the potential challenges ahead. Modern managed futures strategies are based on human-built models. They are very dynamic and tactical. The portfolios are comprised of long and short positions across commodity, fixed income, currency, and equity futures that track simple but durable concepts.
As a way to provide a simple and easy-to-use solution for investors, Dynamic Beta investments has come out with the actively managed iMDBi Managed Futures Strategy ETF (DBMF), which tries to capture long-term capital appreciation by investing in multiple asset classes such as equities, fixed income, currencies, and commodities through futures and forwards contracts. DBMF seeks to achieve its objective by using a managed futures strategy based on a proprietary quantitative model. The strategy, actively managed, seeks to deliver all or more of the pre-fee performance of CTA hedge funds in a daily liquid ETF.
DBi’s investment strategy seeks to identify key market exposures — across equity, fixed income, currency, and commodity markets — of a select pool of CTA (managed futures) hedge funds. Based on this analysis, DBi invests directly in long and short positions in the most liquid domestically traded futures contracts. In addition, by targeting the pre-fee performance of the largest CTA hedge funds, the strategy seeks to deliver the lower risk profile of a diversified pool of funds with reasonable fees.
Additionally, the actively managed iMDBi Hedge Strategy ETF (DBEH) tries to match or outperform the performance of the largest Global Equity Long/Short hedge funds from the HFR (Hedge Fund Research, Inc.) database. The fund’s objective is long-term capital appreciation by investing in multiple asset classes such as equities, fixed income, and currencies through futures and forwards contracts.
DBi’s proprietary investment strategy seeks to identify the main drivers of the performance of a diversified pool of leading long/short equity hedge funds. Based on this analysis, DBi invests directly in long and short positions in the most liquid domestically traded futures contracts. By targeting the pre-fee performance of the largest Global Equity Long/Short hedge funds, the strategy seeks to deliver the lower risk profile of a diversified pool of hedge funds, but with reasonable fees.
“We endeavor to outperform high-cost, illiquid hedge funds with low fees and daily liquidity,” Beer said.
DBi is “known for loudly and publicly sidestepping most ‘landmines’ in liquid alts,” he added.
Financial advisors who are interested in learning more about managed futures can watch the webcast here on demand.