The equity outlook and macro environment continue to evolve in the U.S. as inflation incrementally drops and the economy proves resilient. Advisors and investors searching for a fund capable of shifting positions to align with the changing outlook need look no further than the iMGP DBi Managed Futures Strategy ETF (DBMF).
July brought with it a big change in the recession narrative as the economy continued expansion. Alongside resilient spending and improving consumer confidence, unemployment remained near half-century lows and inflation continued to ease while wages gained.
The Fed raised interest rates another 0.25%, its eleventh raise in the last eighteen months. The summer of services appeared to be in full swing and talks of recession fell away in favor of the “soft landing” narrative once more.
In such an environment, the iMGP DBi Managed Futures Strategy ETF (DBMF) held relatively steady from a performance perspective. It was down slightly for the month, dropping 0.36% but outperformed the SocGen CTA Index and the Morningstar U.S. Trend Systematic Category.
Under the hood, the fund experienced some fairly substantial position changes to reflect the changing macro outlook.
“We’ve gone from very short crude oil — which we interpreted as a recession hedge — to close to flat,” explained Andrew Beer, co-founder of Dynamic Beta Investments and co-PM of DBMF, in a recent video.
Another notable change included moving out of a long position on gold to a short one. “Both shifts make sense in the context of a market less concerned about either recession or runaway inflation,” Beer said.
DBMF remains in a long position in the euro and a short one in the yen. The short yen position experienced reductions, however, on indications from the Bank of Japan in a potential policy shift.
“On the rates side, we’re now short Treasuries across the board,” explained Beer. This is in contrast to previous positioning in mid-March in the wake of regional bank collapses when the fund took a long position in the 10-Year Treasury.
DBMF Positions for the Everchanging Equity Outlook
DBMF increased its long position in the S&P 500 as of the end of July. The fund is currently short EAFE, but swapped from a short position to a long one in emerging markets. It’s a trade that Beer is particularly interested in in regards to EAFE versus the S&P 500.
“Several months ago ‘long EAFE vs the S&P 500’ was a big trade among fundamentally driven hedge funds,” Beer said. “The thesis was that higher rates would benefit value stocks, and there are more of those outside the US these days.”
It’s a trade that is challenging hedge funds currently long EAFE and short the S&P 500. Managed futures funds moved out the trade fairly rapidly as the narrative evolved and currently sits opposite.
“Time will tell who is right here,” mused Beer.
DBMF is an actively managed fund. It uses long and short positions within derivatives (mostly futures contracts) and forward contracts. These contracts span domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary).
The Dynamic Beta Engine determines the position that the fund takes within domestically managed futures and forward contracts. 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 has a management fee of 0.85%.
For more news, information, and analysis, visit the Managed Futures Channel.