It’s been a good year for some active managers, but none more so than those at the forefront of managed futures funds. Andrew Beer, co-portfolio manager of the highly popular iMGP DBi Managed Futures Strategy ETF (DBMF), and managing member of Dynamic Beta investments, recently appeared on ETF Edge alongside Andrew McOrmond, managing director of WallachBeth Capital, hosted by Bob Pisani, to talk managed futures and the ETF structure.
Beer opened the discussion by explaining that commodity trading advisor (CTA) — otherwise known as managed futures — hedge funds outperform during times of market changes and have been such strong performers this year because of the market regime shift that happened in 2022. The last two years, but this year, in particular, have focused on how to make money based on returning inflation and the trends that have arisen because of it.
Managed futures funds invest in the futures market, where they take long and short positions on a wide array of asset classes, depending on how those assets are moving; a big play for DBMF earlier this year was to be long crude oil when it was spiking.
“This is quite remarkable: 30% this year up. I’ve heard people say this could be the ETF of the year,” Pisani said.
The Index+ Approach to Managed Futures
DBMF seeks to replicate the performance of the average of the 20 largest CTA hedge funds, capturing their strategy within an ETF wrapper that is both widely available and easily investible for advisors and investors, as well as saving a fair amount on management fees. The fund currently is long crude oil but is short currencies, treasuries, commodities, and equities.
“We have been in crash protection mode, and that has been the right place to be,” Beer explained.
DBMF falls somewhere between passive and active as it seeks to emulate the performance of the 20 largest managed futures hedge funds, positioning its futures contracts based on the Dynamic Beta Engine, a proprietary, quantitative model. Beer describes the approach as “index plus” in that it seeks to replicate the performance of 20 differently managed CTA hedge funds (index) while cutting out the majority of the management fees (plus).
“We believe in the intelligence, the acumen, the sophistication of these [CTA managers] we just want to be able to copy what they do cheaply,” Beer said.
DBMF goes one step further, though, because taking the average performance eliminates the bias and potential risk of only investing in one CTA hedge fund manager’s perspective on the space, which has traditionally been a “curse” within the space.
“I think the big lesson of the past 15 years has been: the guy who did really well last year is just as likely to have a horrible year this year,” Andrew explained, speaking of the perils of hinging investments on a single manager’s strategy within managed futures hedge funds. Some managed futures hedge funds have had an extremely strong year of outperformance this year, while others have underperformed.
DBMF has a 34.26% YTD return as of 11/07/22 and a management fee of 0.95%.
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