A Look at Managed Futures and DBMF Performance in February

Markets entered the price of perfection early in the year that the US would avoid a major recession, Fed rate hikes would end soon, and inflation would quickly return to near its 2% target rate. . It’s a narrative that has changed over the past month and Andrew Beer, co-portfolio manager of iMGP DBi Managed Futures Strategy ETF (DBMF) and Managing Member of Dynamic Beta Investments, discussed these changes, managed futures strategies and fund performance in a DBMF Monthly Summary.

Markets have been caught in a paradoxical cycle of good economic data leading to market declines on fears of an aggressive Fed response, as the economic slowdown has been cheered by markets over the past year. That created a market of protracted volatility, but that volatility could drag on for years, according to advisers and analysts who experimented with investing in the 1970s, Beer said. Analysts believe that the excessive stock market environment and the recovery of the 2010s will take years to unravel and mean a difficult market environment in the future.

Managed futures hedge funds saw a range of performance in February, with the overall space up but individual funds spanning the performance spectrum: In February, DBMF’s price rose 0.8% but fell -2.5% compared to the SG CTA Hedge Fund index.

“These kinds of swings are natural for our strategy: replication works incredibly well but not perfectly,” Beer said, explaining that DBMF outperforms the index the vast majority of the time, but has quarters where it lags before catching up. .

In February, the fund’s gainer was a short position in Treasuries, while a move into long positions in non-US developed markets dragged gains lower. This positioning is in line with the outlook that in a structurally higher rate global economy, value stocks are potentially positioned for better performance, with non-US stocks providing cheaper exposure to value. All of this has resulted in a more balanced portfolio for DBMF’s holdings compared to its inflation positioning for much of last year.

“That’s…what I would expect to see: we have these two very divergent views in the markets and the funds are trying to find ways to express both sides, hopefully in a way that generates stable and incremental returns through market fluctuations,” Beer said. explain.

The DBMF remains uncorrelated to stocks and bonds, with a stronger negative correlation to bonds due to last year’s capitalization on bond underperformance, a correlation that Beer expects to stabilize closer to zero over the next five years.

What to expect from Managed Futures strategies

Much remains unknown about the Fed’s interest rate trajectory, especially given the recent collapse of Silicon Valley Bank and other banks that has occurred since Beer’s fund visit on March 8. a strategy will work as markets begin to stabilize toward more “normal” conditions over the next five years.

“Given that our cash today is yielding over 4% and with our ability to reduce fees and expenses, I hope we will be able to deliver high single-digit returns simply by capitalizing on fluctuations. market normals,” Bière said. “In a sense, riding waves that may not be tsunamis like last year, but which should hopefully be large enough to create opportunities for earn money.”

For advisers concerned about the risk of futures exposure, Beer is quick to point out that the S&P 500 has seen two major periods of declines greater than 40% in the past two decades and that bonds, while stable for the most part fell 17% last time. year, giving up five years of performance in the process.

Source of images: Dynamic beta investments

“Managed futures contracts experience periodic declines in the 10% range but have never had declines greater than 14%,” Beer said. “It’s pretty amazing. that’s a drawdown of less than a third of stocks twice now, and now less than bonds.

THE iMGP DBi Managed Futures Strategy ETF (DBMF) enables the diversification of portfolios on asset classes not correlated to traditional stocks or bonds. It is an actively managed fund that uses long and short positions in the futures market across multiple asset classes: domestic equities, fixed income, currencies and commodities (through its Cayman Islands subsidiary).

The fund’s position in domestically managed futures and futures is determined by the dynamic beta engine, which analyzes the 60-day performance of CTA hedge funds and then determines a portfolio of liquid contracts that would mimic the average fund performance speculative (and not the post office).

DBMF takes long positions in derivatives with exposures to asset classes, sectors or markets that are expected to rise in value and takes short positions in derivatives with exposures that are expected to fall in value.

DBMF has a management fee of 0.85%.

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

Learn more at ETFtrends.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.