During the quarter, the iMGP DBi Hedge Strategy ETF lost 1.32% at NAV and 1.33% at Market% versus the HFRX Equity Hedge Index benchmark loss of 0.29%%. Since inception the ETF gained 11.45% at NAV and 11.35% at Market versus the benchmark’s 7.26% 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.
Performance as of 9/20/2021 is that of the Predecessor Fund. All of the Assets and Liabilities of the Predecessor Fund were transferred to the Fund in a reorganization on 9/20/2021.
iMGP DBi Hedge Strategy ETF (DBEH) – Market Commentary 1Q2022
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.
The Fund entered 2022 with above average equity exposures, tilted towards the value centric small/mid cap and international developed markets. Prior to the Russia-Ukraine conflict, EAFE was a popular hedge fund trade and was outperforming US markets; however, the invasion of Ukraine led to a sharp reversal. With greater geopolitical uncertainty, net equity risk was reduced throughout the quarter, consistent with hedge fund positioning. The Portfolio’s hedges in the US dollar (long) and Treasuries (short) helped to protect capital. Since inception, DBEH has outperformed the illiquid, high-cost Target portfolio of hedge funds and has provided over 200 bps per annum of alpha with the client-friendly features of an ETF.