Diversifying Ahead of 2024? Consider Managed Futures

The new year should bring a considerable degree of uncertainty, which should warrant more asset diversification. One strategy is to use managed futures, which should help to ease volatility with additional portfolio diversification.

One of the highlights of asset diversification is the disconnect between traditional markets like stocks and bonds. There are myriad options to get uncorrelated exposure. But managed futures add an increased level of diversification that can perform well when markets are trending higher or lower.

“Managed futures arguably offer greater diversification benefits than virtually any other alternative investment: a roughly zero correlation to both stocks and bonds over time, strong risk-adjusted returns and a tendency to perform best during market crises,” noted Institutional Investor. The article added that last year saw the managed futures strategy increase in usage by 10%. That was amid bearish pressure affecting both the stock and bond market.

The question now is where investors can get easy ingress into the otherwise complex world of managed futures. One option is to use the iMGP DBi Managed Futures Strategy ETF (DBMF), which provides unfettered access. The ETF 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.

A Dynamic Approach to Managed Futures

One of the prime advantages of active management is that it 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 current conditions warrant a change. This will prove beneficial in 2024, as an election year could bring market uncertainty and volatility.

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 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. As mentioned, 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.