During the quarter, the iMGP DBi Managed Futures Strategy ETF gained 5.36% at NAV and 4.75% at market price versus the SG CTA Index benchmark’s 4.09% gain. Year-to-date, the ETF gained 33.01% at NAV and 31.57% at market price versus the benchmark’s 26.11% return.
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.
Quarterly Review
In the third quarter, reality set in. The 2010s will likely be remembered as unique and anomalous: a period where a decade of monetary easing – and then an unprecedented fiscal splurge – drove many asset prices to unsustainable levels. Inflation appears entrenched and central banks – especially the Fed – are responding in kind. The fracturing of the geopolitical landscape adds fuel to the fire through supply disruption and deglobalization. As we have been writing about since early 2021, this is a once-in-a-decade regime shift. Dan Loeb noted that signs of the shift – sometimes subtle, sometimes obvious – are all around us; it’s time for a new playbook, he said. Stan Druckenmiller, whose call on inflation in early 2021 ranks among the best of the past decade, says this is the most difficult environment he has seen in his career.
The regime shift rippled through markets last quarter. The MSCI World declined -6.2% and is down -25.4% for the year; the Bloomberg Global Agg Bond index dropped in tandem and is down -19.9% year to date. The Fed is slamming on the brakes: the 2-year Treasury yield – at 0.7% in January and 2.9% in June – now stands at 4.2%. The dollar soared higher – up an astonishing 20% and 14% versus the Yen and Euro, respectively – causing cracks to spread through the markets. As noted in prior letter, hedge funds overall de-risked early and put on inflation hedges in the first half, which helped to preserve capital during the quarter.
Performance and Portfolio Positioning
Managed futures hedge funds have been in “crash protection” mode since early this year, and it paid off in the third quarter. As rates rose, the Fund made money from short positions in Treasuries; as the dollar strengthened, short positions in the Euro and Yen added to prior gains; and short positions in non-US developed and emerging markets were rewarded. Commodities, a big money maker earlier in the year, was more muted but also contributed modestly to performance. Year to date, the Fund has outperformed equity and bond markets by over 50%[1] and, in our view, cements the position that managed futures can be an incredibly valuable hedge during a protracted drawdown in traditional assets.
The Fund’s positions shift regularly, in line with the target hedge funds. This quarter, we saw a material long position in crude oil dialed back as the supercycle thesis buckled; a meaningful reduction in the short position in the Yen, by far the single biggest profit generator this year; a ramp up in a short position in the Euro; a reduction then reloading of a short position in Treasuries; and a reduction in short equity exposure. At quarter end, the portfolio maintains a diversified set of positions to potentially benefit from ongoing turmoil in markets, including further increases in interest rates, a stronger dollar as the Fed hikes faster than others, global geopolitical turmoil continues and a decline in (non-US) equity markets.
Portfolio Characteristics
| Net Asset Class Exposure (%) | |
| US Equities | 1% |
| International Developed Equities | -9% |
| Emerging Market Equities | -2% |
| Currencies | -57% |
| Commodities | -11% |
| Fixed Income | -96% |
| Top 5 Holdings | |
| EUR/USD | -44% |
| 2 Yr Treasury | -23% |
| Eurodollar | -23% |
| JPY/USD | -13% |
| Gold | -11% |
The Fund performance is measured by market price. Equity markets refer to the MSCI World Net Index and Bond markets refer to the Bloomberg Global Aggregate Index.[1]