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Commentary iMGP DBi Managed Futures Strategy ETF Second Quarter 2024 Commentary

During the quarter, the iMGP DBi Managed Futures Strategy ETF (DBMF) gained 5.64% at NAV and 5.70% at market price versus the SG CTA Index benchmark’s loss of 2.22%. Through the first half of the year, the fund was up 18.38% at NAV and 18.33% at price, compared the benchmark’s 7.22% 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

For standardized performance click here: https://imgpfunds.com/im-dbi-managed-futures-strategy-etf/

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. 

Quarterly Review

If there is anyone on Planet Earth who has consistently nailed the macro environment this decade, we have yet to hear about him or her.  Rather, the past several years have been a lesson in unpredictability.  Who would have anticipated a global virus and economic shutdown – let alone one followed a few months later by a bullish frenzy in speculative assets?  Or that the Fed would slam the brakes with 500 bps of rate hikes, only for the economic train to shrug it off?  Or that markets would remain blasé about a rapid deterioration in macroeconomic instability — whether hot or cold wars, political chaos and dysfunction, or socioeconomic fragmentation?  Or that so many market canons – the predictive power of an inverted yield curve, the inverse correlation of stocks and bonds, the relationship of growth and value stocks, the bond market’s reaction to profligate government spending, etc. – would falter?

As physicist Niels Bohr pithily said, “it’s difficult to make predictions, especially about the future.”  As you know from these letters, we embrace this humility.  We live in a world of probabilities, not certainties.  This ethos flows through to how and why we built this Fund.  We avoid making calls where we believe we have no demonstrable edge:  we do not try to predict which hedge fund, let alone strategy, will perform best next year.  Likewise, we avoid risks that have limited economic payoff despite large, unpredictable “fat tails” – e.g. illiquid assets in a daily liquid ETF.  Instead, we focus on two calls where we believe the odds are strongly in our favor: (a) that efficient pre-fee replication can outperform high-cost hedge funds (and, even more so, their liquid brethren) and (b) that diversification among different strategies can lead to a more stable return profile.  To put it succinctly, and to borrow from a hedge fund legend, we focus on what works and try not to do stupid things.

Performance and Positioning

The Fund rose 5.64% net over the quarter. In this quarter the Japanese yen was the top contributor to performance while equities somewhat detracted.  During the quarter, we continued to reduce long equity risk, pushed out the duration of the short position in Treasuries, pivoted from short to long the Euro, and have scaled up the long positions in commodities.  This year arguably has been a case study in the potential performance drag of non-core positions:  numerous markets not only have suffered repeated whipsaws, but allocations to those markets reduced exposure to certain “core” trades (i.e. short the Yen) that worked much better.  Hence, the model is “working” as expected — we have maintained high correlations this year and clearly are capturing the broad positioning of the space – but simplicity is turning out to be an important “alpha generator” above and beyond fee and expense savings.

Portfolio Characteristics

Net Asset Class Exposure (%)
Commodities32%
International Developed Equities25%
Emerging Market Equities7%
US Equities-23%
Currencies-38%
Fixed Income-145%
Top 5 Holdings
US 2 Yr Treasury-84%
JPY/USD-63%
US 10 Yr Treasury-38%
EUR/USD25%
MSCI EAFE25%

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DISCLOSURE

The Funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188, or visiting imgpfunds.com. Read it carefully before investing.

Investing involves risk. Principal loss is possible. 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 funds. Brokerage commissions will reduce returns. The Fund is “non-diversified,” so it may invest a greater percentage of its assets in the securities of a single issuer. As a result, a decline in the value of an investment in a single issuer could cause the Fund’s overall value to decline to a greater degree than if the Fund held a more diversified portfolio. 

The Fund should be considered highly leveraged and is suitable only for investors with high tolerance for investment risk. Futures contracts and forward contracts can be highly volatile, illiquid and difficult to value, and changes in the value of such instruments held directly or indirectly by the Fund may not correlate with the underlying instrument or reference assets, or the Fund’s other investments. Derivative instruments and futures contracts are subject to occasional rapid and substantial fluctuations. Taking a short position on a derivative instrument or security involves the risk of a theoretically unlimited increase in the value of the underlying instrument. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities. Exposure to foreign currencies subjects the Fund to the risk that those currencies will change in value relative to the U.S. Dollar. By investing in the Subsidiary, the Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. Fixed income securities, or derivatives based on fixed income securities, are subject to credit risk and interest rate risk.

A commission may apply when buying or selling an ETF.

Diversification does not eliminate the risk of experiencing investment losses.

The target hedge fund group for DBMF is the SG CTA Index, which consists of 20 of the largest CTA hedge funds.

Bloomberg  Aggregate U.S. Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. The index includes US Treasury Securities (non-TIPS), Government agency bonds, Mortgage backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S.

The SG CTA Index is an index published by Société Générale that is designed to reflect the performance of a pool of Commodity Trading Advisor (CTAs) selected from larger managers that employ systematic managed futures strategies. The index is reconstituted annually.

The Morningstar Systematic Trend Category includes funds that mainly implement trend-following, price-momentum strategies by trading long and short liquid global futures, options, swaps and foreign exchange contracts.  Strategies invest across geographies and assets including equities, fixed income, commodities , currencies and more.

One basis point (bps) is a value equal to one one-hundredth  of a percent (1/100 of 1%)

Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. 

iM Global Partner Fund Management, LLC  has ultimate responsibility for the performance of the IMGP Funds due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement.

The iMGP Funds are Distributed by ALPS Distributors, Inc