ETF of the Week: iMGP DBi Managed Futures Strategy ETF

Managed futures have traditionally been a strategy utilized by hedge funds that institutional investors have used for diversification opportunities.

“It’s nice to see, especially at a time when alternative strategies have become really popular with all of this market volatility, that individual investors and advisors can also diversify into these managed futures strategies,” Lydon said.

DBMF has gained significantly this year, upwards of 25%, when equities and bonds have largely underperformed. This kind of performance led to managed futures being dubbed the “crisis alpha” generators during the financial crisis of 2008 because they tend to do well during times of market dislocation and challenge.

Many advisors and investors might shy away from futures products in general for their complexities, but a fund like this is worth digging into and understanding how it works. DBMF is pulling the levers of short and long positioning on equities, commodities, fixed income, and currencies through the use of futures contracts.

“In the fixed income market, most advisors are more concerned about the volatility that we’ve seen in fixed income even more than the volatility that we’ve seen in equities,” Lydon explained. “Advisors are paring back their fixed income allocation and looking to noncorrelated areas, and we’ve talked about this: managed futures is noncorrelated.”

Over the last decade, some of the best opportunities were within U.S. large cap growth stocks, but most growth-oriented stocks, particularly the FAANG stocks, have been underperforming the S&P 500 in 2022. Aside from fixed income allocations, advisors and investors are selling out of some of these growth stocks to make way for alternatives within their portfolios, such as managed futures.

DBMF has an expense ratio of 0.95%, which, while on the higher end for an ETF, is still significantly lower than the hedge fund options whose performance it seeks to replicate.

“It’s really modern-day management and modern-day pricing,” Lydon said.

Addressing the concerns that investors sometimes have of missing the peak on a fund’s performance, Lydon explained that advisors and investors should consider the following when looking at DBMF: are stocks fairly valued in their opinion, if inflation is at its end, and if interest rates are going to continue to rise. Many analysts believe that while inflation will come down, it will likely linger around 5% for an extended period, and DBMF can provide potential hedging opportunities for such an environment.

“Having a five percent allocation into something like this for the next two or three years is not going to hurt you, number one, and if you’re concerned about volatility with a hedge fund-type structure, rate it on a 200-day average,” Lydon explained.

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