Everywhere you look, markets are bleeding in a sea of red, with advisors and investors shifting money away from the most painful pressure points and sectors while seeking any havens they can. Managed futures are an alternative to consider, particularly the iMGP DBi Managed Futures Strategy ETF (DBMF), which is uncorrelated to equities and bonds. The fund’s construction allows it to attempt to capture performance regardless of which way the market is moving.
To say that the current environment is a challenging one would be one of the most blatant understatements; unprecedented is a stronger and more accurate word to capture the confluence of factors that have led U.S. markets to where they are today.
“Three major macro regime shifts – inflation, monetary tightening and now Cold War 2.0 – emerged over the past year and kicked into high gear last quarter. None were ‘priced in’ and all appear to be in the early stages. In this new world, market participants must try to simultaneously anticipate the actions of policy makers, market participants, producers and consumers – then all the second and third order effects,” writes iM Global Partner in a commentary on the fund’s first quarter performance in 2022.
DBMF and managed futures can be a potential way to ride out the volatility, as they seek to take long and short positions in a variety of sectors that are expected to either underperform or outperform. As an actively managed fund, it responds in real time to market movements and shifting sentiments through derivatives across bonds, equities, commodities, currencies, and more.
“Factor rotations and cross-asset correlations have been exceptionally volatile, as each new shift in the narrative is extrapolated out to the investment horizon. Extreme volatility, widespread leverage and disappearing market liquidity have materially raised the odds of another Lehman moment,” iMGP explains.
Investing in Managed Futures With DBMF
As advisors and investors either move to cash or seek alternatives, they can consider the iMGP DBi Managed Futures Strategy ETF (DBMF), a fund designed to attempt to capture performance no matter how equity markets are moving. The fund seeks long-term capital appreciation by investing in some of the most liquid U.S.-based futures contracts in a strategy utilized by hedge funds.
DBMF allows for the diversification of portfolios across asset classes that are uncorrelated to traditional equities or bonds. It is an actively managed fund that uses long and short positions within derivatives, mostly futures contracts, and forward contracts. These contracts span across domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary).
The position that the fund takes within domestic managed futures and forward contracts is determined by the Dynamic Beta Engine. This proprietary, quantitative model attempts to ascertain how the largest commodity-trading advisor hedge funds have their allocations. It does so by analyzing the trailing 60-day performance of CTA hedge funds and then determining a portfolio of liquid contracts that would mimic the hedge funds’ performance (not the positions).
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. Under normal market conditions, the fund seeks to maintain volatility between 8%–10% annually.
DBMF has a management fee of 0.85% and an additional 10 bps for other expenses listed in the prospectus.
For more news, information, and strategy, visit the Managed Futures Channel.