Volatility has seen a recent spike thanks to a shaky banking system, as highlighted by recent collapses of names like Credit Suisse and First Republic bank. While help is on the way, the recent developments have injected a healthy dose of fear into investors, which could mean more volatility could be ahead.
The S&P 500 jumped to a strong start, hitting a 7% gain in the beginning of February before investor fears of rising interest rates started to creep back into their psyches. The recent news in the banking sector only added to those fears, although rescues of Credit Suisse and First Republic added a pinch of optimism.
“Equity markets drifted higher as concerns lingered about another banking flare up in the U.S. or abroad,” said David Carter, managing director at JPMorgan Private Bank in New York. “Wall Street is taking its cues from Washington and other capitals as it relates to interest rates and banking regulations.”
Active Volatility Protection With DBMF
If the recent rescues did enough to quell fears on the banking system, then there are still other market factors that can induce heavy market fluctuations. Interest rate policy remains a wildcard in the capital markets, so getting volatility protection is a must.
One option is to use the iMGP DBi Managed Futures Strategy ETF (DBMF). Per its fund description, it seeks to replicate the pre-fee performance of leading managed futures hedge funds and to outperform through fee/expense disintermediation.
DBMF allows for the diversification of portfolios by allocating capital to a variety of asset classes that are uncorrelated to typical capital market assets. Furthermore, DBMF is actively managed and uses both long and short positions within the futures market.
Active management provides dynamic market exposure where portfolio managers can easily flex with changing market conditions by adding to or subtracting from the fund’s holdings when conditions warrant a change. This is especially helpful in the current market where portfolios are sensitive to financial news.
The fund’s positions within domestically managed futures and forward contracts are determined by the Dynamic Beta Engine. This strategy analyzes the trailing 60-day performance of Commodity Trading Advisor (CTA) hedge funds and then determines a portfolio of liquid contracts that would best mimic the hedge funds’ averaged performance.
DBMF takes long positions in derivatives with exposures to asset classes, sectors, or markets that are anticipated to grow in value and takes short positions in derivatives with exposures expected to fall in value. This allows investors to capture the upside while also protecting the downside in heavy volatility.
For more news, information, and analysis, visit the Managed Futures Channel.