Interviewee: Andrew Beer (DBi)
Interviewer: Greg Clerkson
Date: September 13, 2024
Greg
Slide 1:
Hi everyone, I’m Greg Clerkson 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 Strategy ETF– ticker: DBMF.
We’ve titled this monthly update “After The August Storm” because a it was quite a month in markets, during which time DBMF held in relatively well both absolutely and compared to its competitors .
Slide 2:
Most who have heard or read Andrew knows he champions the managed futures asset class at large as a critical diversifier for portfolios, a powerful true alternative that can potentially bring a lot of value for allocators. And of course we think DBMF is an efficient choice for that piece of the pie.
Slide 3:
Let’s talk about the month that was August, an excellent case study on the effects of market whipsaws, potential regime changes and volatility at large on managed futures, replication and DBMF — performance, positioning, attribution, etc., in this August 2024 update —
Andrew, over to you –
Andrew:
Slide 4:
Thank you, Greg.
As you probably noticed, August started with a brutal, cross asset whipsaw. Every trend follower was caught off guard, DBMF included. But the portfolios quickly derisked, as we want them to do, and we clawed back some losses by month end.
When the dust settled, DBMF was down around 3.1% net on a price basis in August, slightly ahead of both the SocGen CTA Index (hereinafter the “Hedge Fund Index”) and the Morningstar US Trend Systematic Category (hereinafter the “Morningstar Category”). More importantly, if you look at those columns on the left, DBMF is approximately 900 bps ahead of both indices year to date.
On the macro front, the triggers of the market’s “mini freak out” were a combination of two legitimate shifts in the macro landscape: a “certain” quote unquote Trump victory and Red Wave – good for stocks, the USD and bad for bonds – that turned into a muddy mess, plus there were some signs the economic fly might finally be hitting the windshield. The fuel on the fire was the Bank of Japan’s ill-timed decision to intervene in the currency markets which briefly caused mayhem among global investors and led to frantic unwinds of crowded, leveraged trades. These things do happen in macro land, but a point I’d like to underscore is that managed futures funds derisked quickly as market conditions changed.
[next slide] 5
This slide shows year to date performance of DBMF versus the SGCTA and Morningstar category. As discussed in the past several videos, this year’s outperformance is attributable to avoiding severe idiosyncratic whipsaws in many noncore markets, especially in May and June. In August, you can see that we had a larger drawdown in the first few days of the month than the hedge fund index. At sharp inflection points, due to the nature of replication, we can be a bit slower to derisk. However, as happened last month, if those sharp moves are driven by technical unwinds, we tend to catch back up when markets stabilize. In any event, while we’re not thrilled to have given back about half our year to date gains in two months.
Next slide, please. 6
To move to inception to date performance, DBMF has outperformed the target hedge funds by approximately 300 bps per annum with a correlation of nearly 0.9. More relevant to most listeners, DBMF has more than doubled the performance and Sharpe ratio of the mutual fund/ETF peer group.
Next slide, please. 7
As noted again and again, the real reason people invest in DBMF is for diversification. And hence here is our regular chart on Stocks, Bonds and DBMF. Since inception, DBMF had a negative correlation to both stocks and bonds and plenty of annualized alpha to equities. Clearly, though, investors have many options other than stocks, bonds and managed futures, so iMGP has built a great deck that shows DBMF’s diversification benefits relative to other common alternatives, like commodities, REITS and various liquid alts strategies. Those charts make the case that managed futures, and DBMF in particular, can anchor the diversifying bucket in this industry-wide shift from 60/40 to 50/30/20. I strongly encourage you to reach out to get a copy.
Next slide please: 8
Here’s our slide on volatility-adjusted positioning. The red dots are from the end of June, and the green bars are the end of August. This is what derisking looks like in a volatile market. Starting on the left, we’ve cut long exposure to crude oil but maintained it for gold. In currencies, we eliminated the long Euro position and reduced our short position in the Japanese yen. On the fixed income side, we covered the Treasury shorts and are now modestly long. And finally, we increased overall exposure to equites, primarily by flipping from short to long the S&P 500 futures contract. To be clear, this is what we expect to see in a managed futures portfolio – if markets whipsaw, managers will cut risk and hunt for new opportunities. We cannot avoid losses, but we don’t hold onto losing positions with a white knuckle grip.
Which brings us to the next slide. 9
And here is contribution by factor. As we did in July, we’ve broken it out by 1Q, 2Q and August to underscore the significance of some of the moves this year. The third quarter so far has been rough, as you can see from the losses in both the yen short and bets on rising rates in the Treasury instruments. Those hits have been partially offset by gains in the long gold position and Euro. Equities and crude oil have been neutral to pnl. The overall narrative is as follows: many things were working at the same time through June and we were up 20%; then a sharp shift in market conditions in July and August meant we gave back half of those gains. But in the context of the overall market conditions this year, we are very pleased with those year to date results.
And, with that, I’ll pass the baton back to Greg.
Greg:
Slide 10
Thanks Andrew —
Okay let’s wrap here as we always do with our long-term performance comps.
Year to date 2024 through July, DBMF lost a bit of its outperformance against its two key indexes – DBMF now ahead of the Soc Gen CTA index by 298 basis points annualized, and ahead of the Morningstar Systematic Trend Average by over 450 basis points annualized.
Slide 11:
In closing, thanks as always to our clients and to our prospective clients for your confidence and interest in DBMF
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: [email protected]
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