As Geopolitical Tensions Rise, Navigate With Managed Futures

Russia’s latest aggressive offer to Ukraine could lead to rising geopolitical tensions in the coming days as Russian missiles passed through NATO member Poland exploding in a village and killing two people. Managed futures have been one of the few strategies able to navigate the choppy waters of geopolitical turmoil this year and are worth considering as tensions rise.

The village was near the Ukrainian border and it will be the first time Russian weapons have been used against a NATO country if confirmed, CNBC reported. Russia fired a barrage of at least 85 missiles into parts of Ukraine on Tuesday, targeting buildings and civilian infrastructure, one of the largest strikes since the Russian invasion in February.

Poland has called emergency security meetings and although there has been no official confirmation of the origin of the missiles, the rhetoric coming from the region is already very strong.

“We can of course speculate, ‘was it an accident or not?’ But the reality is because [of] indiscriminate Russian attacks on civilian property for weeks, [we have] now ended up with two missiles killing Polish citizens on NATO territory,” Artis Pabriks, Latvian Defense Minister and Deputy Prime Minister, told the WSJ.

It is not yet known how NATO will react, but its founding treaty is based on mutual defense and the premise that to attack any part of NATO is to attack all of NATO. The only time the NATO treaty was invoked was after September 11, 2001.

There has been a history of de-escalation in previous fatal encounters between Russia and NATO countries, but with tensions already high towards Russia, the way forward is unclear.

Why Managed Futures Contracts for Geopolitical Tensions?

Managed futures strategies trade in the futures market, where they take long and short positions in asset classes based on their performance at that time. When Russia invaded Ukraine in February and sent global commodities and markets into a spiral of volatility, managed futures were able to navigate through the noise and capitalize on sharp changes in market direction.

Geopolitical tensions have been a major element of volatility for much of 2022 and the loss of Polish lives could very well exacerbate these tensions. Managed futures continue to be a haven of uncorrelated returns in market uncertainty and volatility.

Trend-following strategies take the stress out of trying to anticipate market trajectories by investing only based on how stocks are currently moving, not where they are heading. The iMGP DBi Managed Futures Strategy ETF (DBMF) has been a very successful and immensely popular choice for advisors and investors in the challenging environment of 2022.

The fund seeks long-term capital appreciation by investing in some of the most liquid US futures contracts as part of a strategy used by hedge funds and has posted returns of 26.36% year-to-date to 14/11/2022. It has over $1 billion in assets under management and is the largest of all managed futures ETFs.

DBMF enables portfolio diversification across asset classes that are uncorrelated to traditional stocks or bonds. It is an actively managed fund that uses long and short futures positions across multiple asset classes; domestic equities, fixed income securities, currencies and commodities (via its subsidiary in the Cayman Islands).

The position the fund takes 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 performance of CTA hedge funds. hedge funds (not the posts).

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 0.95%.

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


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