Why managed futures are strategic allocations

This year remains challenging as investor and market uncertainty persists. Managed futures funds that outperformed last year mostly declined in the first half of this year. However, through ups and downs, these strategies remain a strategic allocation for portfolios due to their diversification and potential to outperform during market dislocations.

In addition to a change in the market regime, the year 2022 also brought with it an increased and diverse market risk for investors. It’s exactly the kind of environment in which managed futures strategies have thrived, and they have. In a year when very few assets and strategies performed well, these funds rallied greatly.

This year this trend has reversed as market trends change again but no clear trends are evident. The safety of inflation trading that had so strongly fueled the trend towards hedge fund strategies in 2022 disappeared in March with regional US bank failures.

Since then, markets and investors have remained largely uncertain about the course and duration of the rate hikes. Add to this mixed economic signals on the slowdown and job market resilience, and uncertainty about the way forward continues to cause market turbulence with no clear trends emerging. This poses several challenges for trend-following strategies.

The Crisis Alpha potential is remarkable

Managed futures strategies have established themselves as crisis alpha generators in 2022. It’s this crisis alpha potential that makes them so popular with investors and for portfolios. It is this potential that Andrew Beer, co-founder of Dynamic Beta Investments and co-PM of the iMGP DBi Managed Futures Strategy ETF (DBMF B+) Warrants always in portfolios.

“The most successful managed futures allocators — those who made big gains in the early 2000s, 2008 and last year — see it as a strategic allocation,” Beer said in a note to VettaFi. “Size it appropriately and plan to own it in both good times and bad.”

The hedge fund strategy relies on diversification. The diversification potential is twofold; Exposure to the futures market results in low correlations to stocks and bonds. The diversification across asset classes within the futures market further increases the non-correlated potential within the portfolios. It is this ability to diversify and quickly switch positions in rapidly changing markets that allows the strategy to outperform during market dislocations and downturns.

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Image Source: Dynamic Beta Investments

It is a strategy that can also perform in less volatile markets and is always worth adding to portfolios. If a portfolio already has a managed futures strategy, you can make profits and have strong performance potential in the event of a market crisis.

“Allocators who made big gains in managed futures in 2022 bought the strategy before things heated up again,” Beer explained. Anyone who missed 2022 should fully focus on adding it today.”

See Also: As Coincidentally: DBMF’s Investing Coin Flip Anomaly

Invest in managed futures with DBMF

The iMGP DBi Managed Futures Strategy ETF (DBMF B+) The goal is to capture the average return of the 20 largest managed futures hedge funds. By offering the strategy cost-effectively ETF Packaging, DBMF strives to achieve similar performance with significantly reduced management fees.

DBMF is an actively managed fund that takes long and short positions in derivatives (principally futures) and futures. These contracts include domestic equities, fixed income, currencies and commodities (through the Cayman Islands subsidiary).

“Other allocators increase or decrease exposure depending on their macro views and our positioning. We build DBMF with daily transparency to help these people see what we own,” Beer said. “The secret is never to zero out managed futures – otherwise it’s too difficult to get back in.”

The Fund’s position within the domestically managed futures and forward contracts is determined by the Dynamic Beta Engine. This proprietary, quantitative model attempts to uncover how the largest commodities trading advisor hedge funds make their allocations. It does this by analyzing the last 60-day performance of CTA Hedge funds and then specifying a portfolio of liquid contracts that would mimic the hedge funds’ performance (not the positions).

DBMF has an administration fee of 0.85%.

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