During the quarter, DBMF rose 12.16% at NAV and 10.8% at Market while the S&P 500 and Bloomberg US Aggregate Bond Index were down -4.6% and -5.9%, respectively. On an annualized basis, the Fund delivered 9.84% of alpha at Market relative to the S&P 500 – a reminder to asset allocators that alpha is “lumpy” and it is best to buy flood insurance when skies are clear. As importantly, in early 2021, we wrote about the return of inflation and how managed futures could serve as a dynamic inflation hedge: over the past fifteen months, the Fund rose 18.36% at Market while the Bloomberg US Aggregate declined -5.95%. Today, with the regime shift in inflation and rate hikes, opportunities for managed futures should be plentiful: so far in 2022, the Fund has profited from long positions in commodities (supply shocks), short positions in the Japanese yen (slower rate hikes) and the Euro (slower rate hikes and Ukraine spillover), and short positions in Treasuries (inflation). Those gains were offset somewhat by losses in equities, where the Fund materially reduced risk as the quarter progressed.
Performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Short term performance is not a good indication of the fund’s future performance and should not be the sole basis for investing in the fund. Performance data current to the most recent month end may be obtained by visiting www.imgpfunds.com.
Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
A market commentary in early April 2022 feels somewhat premature. Three major macro regime shifts – inflation, monetary tightening and now Cold War 2.0 – emerged over the past year and kicked into high gear last quarter. None were “priced in” and all appear to be in the early stages. In this new world, market participants must try to simultaneously anticipate the actions of policy makers, market participants, producers and consumers – then all the second and third order effects. The head of a global bank recently described the challenges as “unprecedented.”
That said, we can describe what has happened so far this year. The inflation debate is over – for now – and markets expect widespread monetary tightening. The 2-Year Treasury yield began 2021 at 0.11%, rose to 0.73% at year end and now stands at 2.38%. Across the board, bonds suffered drawdowns, with the Bloomberg US Aggregate returning -6.2%, yet corporate bonds are down more due to the painful combination of rising rates and widening credit spreads. The Ukraine conflict exacerbated the current commodity supply shock and, as countries race to domesticate supply chains, was another nail in the coffin for globalization. Equities suffered significant drawdowns, then staged an impressive recovery that cynics label a bear market rally. Factor rotations and cross-asset correlations have been exceptionally volatile, as each new shift in the narrative is extrapolated out to the investment horizon. Extreme volatility, widespread leverage and disappearing market liquidity have materially raised the odds of another Lehman moment. Hedge funds appear to view the current situation as a great opportunity but also fraught with risk, as an unsubstantiated headline can suddenly and violently reverberate through markets.