Video
iMGP DBi Managed Futures Strategy ETF Update with Andrew Beer | January 2024
In this new video update, Andrew Beer covers topics including current positioning of the portfolio, alongside the trends and more! MORE
Interviewee: Andrew Beer (DBi)
Interviewer: Mike Pacitto
Date: May 6, 2024
Mike:
Slide 1:
Hi everyone, I’m Mike Pacitto with iM Global Partner, joined by Co-Founder of DBi and Co-Portfolio Manager, Andrew Beer. Thanks for joining our monthly update on the iM Global Partner DBi Managed Futures ETF Strategy – ticker: DBMF.
Slide 2:
We’ve named this monthly update “Diversifying While Delivering Alpha” for many reasons which Andrew will go over, and then some, during his commentary – but beyond performance, as we approach the 5 year anniversary since DBMF launched, we really hope our investors – and prospective investors – can feel the genuine enthusiasm we have for what we’re looking to accomplish – and that is, to deliver a truly diversifying, low-cost, alpha-generating, elegant solution for portfolios that make your job as allocators and advisors better, and a little bit easier – and ultimately the most important part, better for clients and shareholders.
Slide 3:
We really do believe that DBMF is distinctive. And that’s my elevator open today Andrew … so with that, please begin!
Andrew:
Slide 4:
Thank you, Mike. And, as always, thanks to everyone for listening in.
Wow. What a month. DBMF rose 4.4% net on a price basis while the S&P 500 dropped -4.1% and the Bloomberg US Aggregate Bond index declined -2.5%. Year to date, DBMF is up 16.8% net on a price basis, several hundred basis points ahead of the SocGen CTA Index (hereinafter the “Hedge Fund Index”) and over 680 bps ahead of the Morningstar US Trend Systematic Category (hereinafter the “Morningstar Category”).
On the macro front, inflation fears are back and macro strategists are whispering that dreaded word, “stagflation.” The hoped-for Fed cuts are not coming anytime soon, and a few economists have started to talk about a potential rate hike later this year. For allocators, a serious problem is that stocks and bonds are moving in tandem again after a brief respite earlier this year. Just as a reminder, as many market researchers have talked about recently, when inflation is above 2.5% stocks and bond correlations tend to be positive, which is contributing to what we think is a grinding shift from 60/40 to 50/30/20.
As you’ll know from last month’s report, CTAs dialed up equity exposure in the first quarter, and this was a big contributor to gains through March. As we’ll explain shortly, we did give back gains on equities this month, but those losses were more than offset by gains in inflation-sensitive trades: rising commodity prices, the King Dollar trade as the Fed keeps rates high while weaker economies cut rate, and a bet on rising rates through short positions in Treasuries.
Now let’s get a bit into the weeds.
Next slide, please.
Slide 5:
Here’s the variant of our regular chart on Stocks, Bonds and DBMF, except with a smaller timeframe to show just the performance YTD. As you can see, during the first quarter, as equities rose strongly, DBMF rose as well – benefiting not just from the pivot into long equity exposure, but also from some gains in other asset classes. Naturally, periods like this do fuel fears that a reversal in equities will necessarily hurt trend followers, that the diversification benefits of the strategy have somehow been eroded. As you can see, this is not always the case. While both equities and bonds both rolled over in April, DBMF continued to march upward. The reason, of course, is that managed futures funds invest across all four major asset classes: not just equities, but also rates, currencies and commodities – and they can benefit from prices moving either up or down. Hence this flexibility and diversification means that there can be plenty of opportunities even during a difficult month like April – as we’ll show in more detail in a few slides. So for me, last month was a case study in this whole idea.
Next slide, please.
Slide 6:
Now here is our regular chart on Stocks, Bonds and DBMF. Since inception, DBMF has returned 10.2% (on price) per annum with a negative correlation to both stocks and bonds and over 1000 basis points of annualized alpha to equities. On May 9, we hit a huge milestone: DBMF celebrates its fifth anniversary since launch. We set out to prove that we could build an ETF that could outperform leading managed futures hedge funds, but with a fraction of the fees and full position level transparency. Today the fund is above $1 billion in AUMs and our hope is that DBMF will become the default allocation for model allocators in the wealth management space as more and more firms embrace the diversification benefits of trend following. Over the coming months, you’ll be hearing me talk a lot about how and why we think managed futures becomes the next asset class to really go mainstream over the coming decade – similar to what has happened with private equity, REITs, private credit, etc. Well, at least that’s the dream that gets Team DBi out of bed in the morning…
Next slide please.
Slide 7:
Here’s our slide on volatility-adjusted positioning. The portfolio has been dynamic all year – as the target hedge funds readjust their positioning, we follow along. Rather than show current positioning relative to year end, as we did last month, we’re showing it here relative to just a month ago. We’re doing this to underscore that we have seen some derisking this month. The most important, of course, has been the profit taking in equity long positions. One of the things I really like about the strategy is that quant models are very dispassionate about exiting positions when they stop working. In a sense, it reminds me of a good trader who takes gains and thinks quickly about how to deploy the winnings into other opportunities. Having watched the portfolio really push the long equity trade earlier in the year, it’s something of a relief to see the derisking given what feels like a much shakier market than a month or two ago. You can also see some reduction in risk elsewhere, like the longs in gold and oil, but the big action was really on the equity front. Note that, as of today, our positioning is relatively balanced, with some positions that might stand to benefit if inflation fears recede (eg equities) while others that might benefit if the US inflation genie gets closer to escaping the bottle (long crude and gold, long the dollar against the yen, and modest shorts in Treasuries).
Which brings us to the next slide.
Slide 8:
Here is contribution by factor. I was trying to think through how to describe this idea of “handing the baton” from equities to other asset classes in April. The best I could come up with was a side by side comparison of year to date gains through March, then compared with gains and losses in April. This seemed a bit easier to visualize that showing lots of bars with monthly figures. So the left bars are what you saw in last month’s performance slides – a good percentage of gains through March were indeed from equities – initially the S&P 500 then moreso from EAFE, or non-US developed markets later in the quarter. As noted, the yen was in fact our single largest gainer, and we were starting to see some gains pick up in other areas. Then in April, you can see that we gave back gains on those equity positions, but you can see sharp gains in other positions – more gains on the yen, but also in gold and Treasuries.
With that, I’ll pass the baton back to Mike.
Mike:
Slide 9:
Thanks Andrew — let’s wrap here as with our long-term performance comps.
And with this very strong April, DBMF has expanded its outperformance against its two key benchmarks – now ahead of the Soc Gen CTA index by 240 basis points annualized, and ahead of the Morningstar Systematic Trend Average by over 440 basis points annualized. And of course our expenses, which are less than half that of our Morningstar® peer group, another compelling differentiating factor for DBMF.
Slide 10:
And since I led with plenty of verbosity in my opening, I’ll keep it to a minimum here at the close to say — thanks as always to our clients and to our prospective clients for your confidence and interest in DBMF
Slide 11:
If you have more questions about the strategy, would like further information or a call with us please don’t hesitate to reach out – just send us an email at: team@imgpfunds.com
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