During the quarter, the iM DBi Managed Futures Strategy ETF declined 2.05% versus the SG CTA Index benchmark’s gain of 0.66%. Year to date through September 30, the ETF gained 9.18% versus the benchmark’s 7.13% gain.
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.
Quarterly Review
During the third quarter, markets struggled with three issues: slowing growth coupled with persistent supply chain bottlenecks raised the alarming prospect of global stagflation; despite this, the Federal Reserve appears ready to taper asset purchases by year-end; and China, opaque under the best of circumstances, expanded a mysterious economic crackdown just as the domestic real estate industry (e.g., Evergrande) buckles after years of debt-fueled expansion. The “good” inflation thesis of early 2021 has shifted to a “bad” one, with the transitory versus permanent debate still raging. With shifting expectations, global equites in general rose sharply in July and August only to reverse in September; rates fell then spiked; growth materially outperformed value then gave back most of it; and crude oil plummeted then recovered. Growing uncertainty caused a flight to safety to the US dollar and out of emerging markets and small cap stocks.
Hedge funds had a mixed quarter. While equities, as measured by the S&P 500 Index, soared 5% over July and August, returns were disappointingly flattish – blamed on the sharp reversal of the value trade and inflation theme. By contrast, when equities fell the same amount in September, hedge funds rose slightly – by some measures, one of the best months in a decade. Overall, stock pickers fared poorly as longs underperformed shorts by more than 300 basis points (bps), and many emerging markets-focused funds were caught offsides as some Chinese stocks became “uninvestable.” On the positive side, supply side inflation created short-term windfalls, such as the 30%+ spike in natural gas in the last few weeks of the quarter. Single manager dispersion is the norm, and among our target hedge funds, the spread between best and worst performers this year is well over 50%.
Performance and Positioning
The Fund’s portfolio remains highly dynamic as trends materialize and revert across markets. During the quarter, the portfolio rotated from long to short positions in the 10-year Treasury note, gold, emerging markets and EUR; meanwhile, we maintained or increased long positions in crude oil and developed markets equities. During the quarter, the Fund underperformed the SG CTA Index by 263 bps. The Fund gains exposure to commodities through futures contracts on gold and oil; our analysis suggests that the hedge funds in the SG CTA index earned 200-300 bps from investing directly in natural gas, which rose more than 30% in September alone, and that this explains the recent performance differential. Importantly, the Fund remains ahead of the Index by approximately 205 bps year to date and 356 bps per annum since inception.
Portfolio Characteristics
| Asset Class Exposure (%) | |
|---|---|
| US Equities | 37% |
| International Developed Equities | 40% |
| Emerging Market Equities | -17% |
| Currencies | -90% |
| Commodities | 8% |
| Fixed Income | -33% |
| Top 5 Holdings |
|---|
| EUR/USD |
| EAFE |
| S&P 500 |
| 2 Yr Treasury |
| Eurodollar |