An aggressive Fed, world economy fears, persistent inflation, and a 20-year high for the U.S. dollar, take your pick of any number of factors right now that are contributing to market decline and volatility as investor fear grows. Above it all continue to float managed futures, the crisis alpha generators that have more than proven their mettle in the sea of volatility in 2022, offering several benefits for portfolios, not the least of which have been strong returns this year.
Stocks continue to fall further into bear territory on trading Tuesday after the Dow Jones Industrial officially closed Monday afternoon in a bear market. The S&P 500 on Tuesday set a new low for the year and is currently trading at 21.4% below its January highs as of midday trading while the Nasdaq is off 33% from November record highs.
Should the trend continue for the rest of the week, September would round out the worst first nine months for the S&P 500, Nasdaq, and Dow Jones since 2002 and the height of the dot-com crash.
“The fact that we lost support at both 3900, 3800 and certainly made a beeline to the June lows tells you that the risk-off environment hasn’t changed much over the course of the last six weeks,” Art Hogan, chief market strategist at B. Riley Financial, told CNBC. “We’re still concerned that the Fed is going to overdo it and push the economy into recession.”
Managed Futures Vastly Outperforming While Markets Plummet
Investors looking for a fund that has performed well during volatility should consider the iMGP DBi Managed Futures Strategy ETF (DBMF), a managed futures fund designed 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 and has 34.66% returns year-to-date as of 09/26/2022. It has an AUM of nearly $850 million, the largest of any managed futures ETF.
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 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 0.95%.
For more news, information, and strategy, visit the Managed Futures Channel.