Under the Hood of DBMF's April Performance

April brought with it another month of choppiness for markets, punctuated by the failure of a third regional bank. The collapse of First Republic Bank extended banking sector fears for investors, exacerbating market volatility.

DBMF allows for diversification across asset classes uncorrelated to traditional equities or bonds. It is an actively managed fund that uses long and short positions within the futures market on several asset classes. These include domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary).

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Andrew Beer, co-founder of Dynamic Beta investments and co-PM of DBMF walked through the fund’s performance in April in a recent video. DBMF rose 1% in April while the SocGen CTA index gained 2%. Beer reminded investors that DBMF’s trailing YTD performance isn’t surprising due to the more concentrated nature of DBMF.

“About ten percent of the time, our more concentrated portfolio will ‘miss’ some trades that generate additional alpha,” Beer explained. “We have ample evidence that our models are working as expected given this particular market environment.”

The collapse of First Republic at the end of April underscored the risk for regional banks for many investors.  Tightening bank lending is likely to have a domino effect on the economy, which continues to prove surprisingly resilient. Add in the debt ceiling “game of chicken in Washington”, inflation that is receding but remains high — particularly in core inflation — and it’s a whole bag of mixed signals and market gyrations.

It means that strategies like managed futures that work by identifying trends are having a nearly impossible time doing so.

“The market consensus keeps flipping back and forth which is creating oscillations, rather than clear trends, in most asset classes,” said Beer. “This market has felt like one step forward and two steps back.”

DBMF currently is long gold, which Beer feels could be a key position later in the year if the dollar begins to fade. The fund is short Treasuries though positioned more heavily in shorter duration, and long EAFE futures. Of note, there is a “partial hedge” in the S&P 500 and MSCI Emerging Markets futures that Beer sees potential in.

“I personally like the short S&P 500 position as a partial hedge in case US markets get really ugly in the next six months.”

Other positions include long the euro and a small short in crude oil, one of the best places to see asset class oscillations in the last year.

See also: 3 Questions Investors Are Currently Asking About Managed Futures

The current overall positioning of DBMF reflects the ending of the inflation trade that managed futures strategies soared on last year. In its place new ones rise, such as gold that was all but forgotten last year.

“This simply underscores the dynamic nature of the portfolios,” Beer explained. “However this crazy macro environment plays out, the funds will be looking for the best ways to capitalize on it.”

The iMGP DBi Managed Futures Strategy ETF (DBMF B+)’s position within domestically managed futures and forward contracts is determined by the Dynamic Beta Engine, which analyzes the trailing 60-day performance of CTA hedge funds and then determines a portfolio of liquid contracts that would mimic the hedge funds’ averaged 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.

DBMF has management fees of 0.85%

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