Job Market Likely to Fuel Fed Aggression: DBMF Invests for Volatility

Back-to-back job market reports yesterday and today are likely to keep the gas pedal on Fed interest rate hikes in the first quarter of 2023. Given the market volatility around FOMC meetings as well as in response to Fed rate hikes in 2022, the trend is likely to remain for now, leaving many managed futures strategies well-positioned as market volatility persists in 2023.

Wednesday’s release of November’s Job Openings and Labor Turnover Survey (JOLTS) revealed sustained employment demand that was only down marginally from October and well above expectations. Available job openings in November were 10.46 million, or 6.4% of the labor force, remaining persistently high despite Fed aggression aimed specifically at cooling the economy and job market. JOLTS is one of the labor reports watched closely by the Fed.

Thursday’s double hit of lower-than-expected jobless claims that fell 19,000 last week alongside ADP’s employment report that revealed private employers unexpectedly adding 235,000 jobs in December leaves little doubt that the jobs market continues to be resilient.

“The labor market is strong but fragmented, with hiring varying sharply by industry and establishment size,” said Nela Richardson, chief economist at ADP, in the press release.

U.S. markets fell on Thursday while the dollar gained after the release of the labor-market reports, continuing the trend of volatility that was the hallmark of much of 2022. It’s likely to continue while uncertainty remains over how aggressively the Fed will hike rates, how long they will maintain elevated rates, and how the economy will continue to respond.

Investing for Volatility With DBMF

Managed futures strategies largely outperformed in 2022, capitalizing on prolonged volatility and market dislocations. The iMGP DBi Managed Futures Strategy ETF (DBMF) has been an immensely popular choice for advisors and investors alike in the last year. With the economic downturn and challenges ahead this year, DBMF could be positioned for continued outperformance: at a minimum, it offers strong hedging potential for equity underperformance.

DBMF allows for the diversification of portfolios across asset classes uncorrelated to traditional equities or bonds. It is an actively managed fund that uses long and short positions within the futures market on several asset classes; domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary).

The fund’s position within domestically managed futures and forward contracts is determined by the Dynamic Beta Engine, which analyzes the trailing 60-day performance of CTA hedge funds and then determines a portfolio of liquid contracts that would mimic the hedge funds’ averaged 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.

DBMF has management fees of 0.85%.

For more news, information, and analysis, visit the Managed Futures Channel.