Interviewee: Andrew Beer (DBi)
Interviewer: Mike Pacitto
Date: August 9, 2024
Mike:
Slide 1:
Hi everyone, I’m Mike Pacitto with iM Global Partner, joined by Co-Founder of DBi and Co-Portfolio Manager, Andrew Beer. Thanks for joining our monthly update on the iM Global Partner DBi Managed Futures Strategy ETF– ticker: DBMF.
We’ve titled this monthly update “The Yen Before August” because reviewing July will be quite old news by the time this update comes out – as markets go, things move slowly until they move fast. And things have moved very fast to start August.
Slide 2:
But we have been here before with DBMF and haven’t changed the model through short-term volatility situations – we believe our index-plus replication approach has proven itself historically and we’ve experienced whipsaws before – but rest assured, we’ll address August fully in next month’s update.
Slide 3:
That said, we continue to believe managed futures and DBMF should be considered within the alternatives allocation of portfolios – so Andrew will touch on positioning, attribution, etc., in this update as usual alongside further thoughts and color on macro, drivers of performance and how we look to deliver that with consistency over the long-term.
With that Andrew, over to you –
Andrew:
Slide 4:
Thank you, Mike.
In July, DBMF lost around 3.7% net and is up around 14% net (on a price basis) year to date. We underperformed both the SocGen CTA Index (hereinafter the “Hedge Fund Index”) and the Morningstar US Trend Systematic Category (hereinafter the “Morningstar Category”) – primarily because we have more direct exposure to the yen and, as you have seen, the yen has been bouncing back after the Bank of Japan appeared to have intervened in the currency markets. As we discussed last month, our outperformance this year is due to both avoiding whipsaws in noncore positions – certain commodities and currencies, for example – but also through higher concentration in some trades – like the yen – the overall have been working better. As anyone listening to this will know, we gave back more of that outperformance in the first few days of the month, and this of course is something we will discuss in great detail next month.
The key stat, I think and as noted on the left, is that since inception just over five years ago, we have outperformed the target hedge funds by around 300 bps per annum and doubled the annual performance of the mutual fund equivalents – all by simply aiming to replicate pre-fee returns and charging less.
In terms of positioning and macro, the broad positioning has followed the smart money into what we call the Trump trade. The investment thesis was that a Red Wave would be good for the economy, and hence stocks, would lead to stickier inflation with higher rates and a strong dollar. Clearly, that thesis – a view held not just by CTAs but also many hedge funds – has been disrupted (at least temporarily) in the past few days. But again, we will discuss this next month. On the macro front, things are moving fast, with the political calculus thrown off by the Democrats’ election switcheroo and increased efforts by Japan to halt the slide of the yen.
[next slide] 5
This slide shows year to date performance of DBMF versus the SGCTA and Morningstar category. To reiterate the points we made last month: first, replication has maintained high correlation all year long. The second is that the performance gap widened in May and June, but narrowed slightly last month. This kind of variability is to be expected. In May and June, we outperformed by avoiding a number of positions – the Mexican peso, some commodities, a few European equity markets, etc. – that whipsawed due to idiosyncratic factors. That helped us. In July, the idiosyncratic move was concentrated in the yen, which led to modest underperformance. And so we gave back some outperformance. But it’s the long term that matters for any serious investor, which brings us to the next slide.
Next slide, please. 6
Here is inception to date performance. DBMF has outperformed the target hedge funds by approximately 300 bps per annum with a correlation of 0.9. More relevant to most listeners, DBMF has doubled the performance and Sharpe ratio of the mutual fund/ETF peer group.
Next slide, please. 7
As noted again and again, the real reason people invest in DBMF is for diversification. And hence here is our regular chart on Stocks, Bonds and DBMF. Since inception, DBMF has returned around 9% (on a price basis) per annum with a negative correlation to both stocks and bonds and nearly 1000 basis points of annualized alpha to equities. Of course, as any student of the space knows, correlations will rise and fall as the positioning of the industry changes, but the important thing is that managed futures can serve an important role as a complement to traditional assets.
Next slide please: 8
Here’s our slide on volatility-adjusted positioning. The red dots are from the end of June, and the green bars are the end of July. Starting on the left, we’ve cut long exposure to crude oil but maintained it for gold. In currencies, we reduced our short position in the Japanese yen after the yen-tervention scare early in the month. On the fixed income side, we maintained short exposure to Treasuries across the curve. And finally, we increased overall exposure to equites, primarily by flipping from short to long the S&P 500 futures contract.
Which brings us to the next slide. 9
And here is contribution by factor. For this update, we broke it out by 1Q, 2Q and July to underscore the significance of some of the moves this year. Clearly, the standout winner during the first half of the year was the Japanese yen, but in July we gave back some of the gains and, as noted in the last slide, began to reduce exposure. Clearly, the moves in the first few days of August mean the trade – one of the great money makers for the CTA space – is over for the time being. Interestingly, on the left, gold has been a consistent winner. However, oscillations in fixed income – from expectations of six rate cuts to zero and maybe heading back again – have made it difficult for CTAs to capitalize on any sustained moves. Equities were losers in the first quarter, important drivers of gains in the second quarter, and were modestly negative in July. But overall, this year has characterized by relatively rapid shifts in exposures as market conditions have changed, and this overall has worked very well through July.
And, with that, I’ll pass the baton back to Mike.
Mike:
Slide 10
Thanks Andrew — let’s wrap here as we always do with our long-term performance comps.
Year to date 2024 through July, DBMF lost a bit of its outperformance against its two key benchmarks – DBMF now ahead of the Soc Gen CTA index by over 300 basis points annualized, and ahead of the Morningstar Systematic Trend Average by 460 basis points annualized.
Slide 11:
In closing, thanks as always to our clients and to our prospective clients for your confidence and interest in DBMF
If you have more questions about the strategy, would like further information or a call with us please don’t hesitate to reach out – just send us an email at: [email protected]
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