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Video: iMGP DBi Managed Futures Strategy ETF Update with Andrew Beer | November 2024
In this video, “Simple is Better”, DBMF Co-Portfolio Manager Andrew Beer covers Nov. & YTD performance and more. MORE
Interviewee: Andrew Beer (DBi)
Interviewer: Mike Pacitto
Date: January 13, 2025
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.
Slide 2:
This is our December slash Year End update, which we’re calling Simpler Worked Better in 2024.
Slide 3:
Before I hand it over to Andrew, a quick factoid about the managed futures space that may be of interest to our audience –while the average expense ratio for the Morningstar® systematic trend category is 1.88%, , the approximate average weighted cost for constituents comprising the SG CTA Index is approximately 1.3% plus over 13% incentive fees? And that does not include trading costs.
This plays right into one of the key advantages of DBMF and catalysts for its historical outperformance. – low fees and low trading costs.
Okay Andrew, let’s get to the update — over to you!
Andrew:
Slide 4:
Thank you, Mike.
Well, we finished 2024 up a little more than 7%, about 500 bps ahead of the SocGen CTA Index (hereinafter the “Hedge Fund Index”) and 600 bps ahead of the Morningstar US Trend Systematic Category (hereinafter the “Morningstar Category”). So a big win from a replication perspective. The short answer is that Simple Worked Better in 2024, and I’ll elaborate on this in a few slides.
On the macro front, the Trump Trade is back in full swing, but with a twist. The Trump trade from earlier this year was a return of economic optimism, animal spirits even. CTAs picked up on this, went long equities and the dollar, and were cautious about inflation. Then CTAs and plenty of other smart money investors got whipsawed in the late summer and early Fall as sentiment flip flopped. Now CTAs are back in similar trades, as we’ll see in several slides, but with a constructive but more cautious view on equities, nervousness about a resurgence of inflation, and a decidedly negative view on Europe via the Euro.
[Slide 5]
Here’s a new slide that is very important for anyone in the business of building model portfolios. As some of you know, SocGen has taken our replication engine and built an index around it. I believe this index, not the hedge fund index we seek to replicate, is the more appropriate index for the wealth management space. After all, why build capital markets assumptions with an index of hedge funds, when you cannot invest in hedge funds? Instead, we expect allocators to use this new index to build capital markets assumptions, evaluate mutual fund and ETF products, and as benchmark the allocation in client reporting. Data is available on Bloomberg and please let us know which other analytical platforms or databases it should be in, and we’ll get the message over to SocGen.
[next slide] 6
This slide shows year to date performance of DBMF versus the SGCTA and Morningstar category. There’s a reason I’ve been calling it the Year of the Whipsaw – everything was working through mid year, then the back half of the year was characterized by sharp, spastic shifts in market sentiment. So here’s how I look at it. CTAs analyzes prices because those price moves shine a light on changes in (a) information and (b) sentiment. I care most about the first one: CTAs pick up signs of inflation in 2021 and are positioned to generate a decade of alpha in 2022. Sentiment is more erratic, less stable. Sometimes it works for CTAs – like when people pile into a trade that’s been working and push it farther. Sometimes it hurts – like when people panic and markets whipsaw. In 2024, I think CTAs nailed the big shift in information, which was the return of Trump and everything that implied. The whipsaws in sentiment – panic at a few bad economic data points, overreacting to Powell’s latest utterance, etc – those caused oscillations in markets that meant most CTAs, including our replication, seemed wrong footed in the back half of the year. Without those oscillations, this likely would have been a historically good year for the strategy. But it is what it is.
Quickly on tracking relative to the hedge funds: you can see that for several months starting in late Spring, we held our gains while the hedge funds got hit. As we’ve discussed, this was a period where complexity hurt: more esoteric, non core futures were getting whipsawed, shorter term models got caught off sides, etc. So by the end of the third quarter, we were massively ahead. In the fourth quarter, those non core markets started to work again, and the hedge funds caught up a bit. This is all within expectations considering that replication is an approximation, not exact copy, of what managed futures hedge fund do.
Next slide, please. 7
To move to inception to date performance, we now have more than five and a half years of performance as an ETF. Since launching DBMF, we’ve handily outperformed the target hedge funds and, since the hedge funds have outperformed the mutual fund/ETF peer group, doubled the performance of the Morningstar Category. As you may recall, we spent a lot of 2023 testing our models to make sure they were still working as expected, and concluded that our underperformance was attributable – not to an issue with the model – but bad luck – the equivalent of flipping tails three or four times in a row. So we made the decision to not change anything, and it proved right in 2024. Now we can all look forward to an exciting 2025!
Next slide, please. 8
Here’s our slide on volatility-adjusted positioning. The red dots are from the end of September, and the green bars are the end of December. By the end of the third quarter, if you recall, we had cut back the strong dollar/rising rates bet that had contributed to gains earlier in the year, but had maintained long exposure to equities, which clearly had been trending up. With the revival of the Trump trade, renewed concerns about inflation and runaway budget deficits, and shakier equity markets, and a mess in Europe, the three big trades are to be long the US dollar against the Euro, a bet on steeper yield curve and continued gains in US equity markets. While it doesn’t drive how we build the portfolio, I do like that positioning heading into the New Year.
Which brings us to the next slide. 9
And here is contribution by factor. Note that these figures are futures returns only and do not include cash returns. In any event, the story last year was very clear: long gold worked, currencies (really, shorting the yen until the yenpocalypse in July/August and then pivoting to short the Euro) and long equities were the big drivers of performance. The Treasury markets were what a friend of mine called “Whipsaw Hell” – the oscillations in sentiment were timed almost perfectly to cause reversal just after CTAs had build a directional view. In a sense, it is analogous to equities in 2022 – CTAs generally got the direction right (ie down) but all the reversals along the way was the trading equivalent of death by a thousand cuts. Like in 2022, but a bit less so, three of the four asset classes made money. That’s a great outcome in my eyes.
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 long-term performance comps.
Closing out 2024 as we did resulted in DBMF posting a 7.32% annualized return since its inception, ahead of the Soc Gen CTA index by over 205 basis points annualized, and ahead of the Morningstar Systematic Trend Average by over 375 basis points annualized.
Outperformance against the AGG, the traditional diversifier for the standard 60/40 portfolio and the primary benchmark by prospectus, inclusive of dividends for both it and DBMF, is 670 basis points annualized.
Slide 12:
This leads us to our last slide which, if you’re allocating to alternatives, is a must-see – essentially showcasing DBMF and managed futures versus all other alternatives categories in the Morningstar® universe as the lowest correlation/highest alpha-generating strategy within. So if you’re allocating to alternatives, DBMF certainly deserves serious consideration for inclusion in that allocation.
Slide 13:
Okay so 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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