Video Video: iMGP DBi Managed Futures Strategy ETF Update with Andrew Beer | October 2024

Interviewee: Andrew Beer (DBi)
Interviewer: Mike Pacitto
Date: November 12, 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 Strategy ETF– ticker: DBMF.

Slide 2:

The title of this month’s update is “The Essential Alternative.” This is to highlight a new animated video we’ve produced – separate from our monthly ones – analyzing managed futures as a must-have asset class for allocators who are using alternatives in their portfolios, positioning DBMF as the optimal managed futures strategy.  

Slide 3:

The animated video can be found on the DBMF microsite – www.dbmf.com – and clocks in at just under 5 minutes. It talks about the shift from 60/40 to 50/30/20, focusing on how DBMF compares not only to competitors in the managed futures space, but also to the entirety of the Morningstar® alternatives universe.  

Slide 4:

Here’s a screengrab from the video. You can see managed futures and DBMF delivering more alpha than any other strategy within the alternatives category, with no correlation to equities. This time period is from the inception of DBMF in May of 2019 through the end of third quarter of 2024. It’s a simple but compelling story that we approach from multiple angles, so we hope you’ll check it out.

Okay Andrew let’s proceed with an update on DBMF for the month that was October –

Andrew:

Slide 5:

Thank you, Mike. 

Well, the Trump Trade is back.  In spades.  Markets started to sense this in the run up to the election.  Stocks and bonds both dropped, with the latter now underperforming cash again.

From our perch, it’s quite frustrating when you get the trade mostly right but the timing mostly wrong.  In July, CTAs were in the Trump Trade:  long equities, short Treasuries and long the dollar.  Most of those positions would have made money in October.  However, during the dual head fakes of a potential Trump loss and crashing economic growth – they derisked key trades.  Frustrating, but that’s the nature of the beast for a nimble strategy that cuts losses when markets whipsaw.

In any event, when the dust settled, DBMF ended the month down a bit behind both the SocGen CTA Index (hereinafter the “Hedge Fund Index”) and the Morningstar US Trend Systematic Category (hereinafter the “Morningstar Category”).  Year to date, though, this has been a case study in how simple sometimes works better: if you look at those columns on the left, we remain about 800-900 bps ahead of both the Soc Gen CTA Index and the Morningstar Systematic Trend category this year.  As discussed previously, this is largely due to missing some ugly whipsaws in things we, by design, do not trade.

[next slide] 6

This slide shows year to date performance of DBMF versus the SGCTA and Morningstar category.  To repeat verbatim what I said last month: this has been a great year to avoid whipsaws in many noncore markets – most of which occurred in the late Spring and Summer.  The criticism of replication with ten deep, liquid futures contracts is that we’ll miss alpha generation from more esoteric trades.  It sounds like a great argument, except that we just don’t see it in the data.  Yes, they can generate positive alpha at times; in others, though, you can have negative alpha, like this year.  Hence, complexity and diversification in this space are two edged swords.  If anyone wants to drill down deeper on this, please reach out.

Next slide, please. 7

To move to inception to date performance, DBMF has outperformed the target hedge funds by nearly 300 bps per annum with a correlation of nearly 0.9.  More relevant to advisors, DBMF has more than doubled the performance and, believe it or not, tripled Sharpe ratio of the mutual fund/ETF peer group.  This kind of hard evidence tends to blow up arguments that complexity leads to higher Sharpe ratios.  We have this funny chart where we show the number of positions in DBMF vs some of the larger competitors.  We have ten futures; they might have three thousand.  According to allocator lore, the latter should win over time.   And yet it doesn’t.  Which is the grounding for our argument that complexity is often a marketing tool used to justify higher fees.  Of course, we’re using factor replication, not building trend models, but you get the point.

Next slide, please. 8

Here’s our slide on volatility-adjusted positioning.  The red dots are from the end of September, and the green bars are the end of October.  Starting on the left, in the commodity space, we see the same exposures but an increase in conviction.  On the currency front, the extreme volatility in the yen since July finally led to getting out of the short trade.  The Treasury positioning has been very frustrating:  after the Rate Cut Euphoria head fake, we shifted positioning to a bet on lower rates by the end of September, only to walk into that particular propeller as the Trump Trade was revived.  The portfolio has repositioned back to benefit from higher long term rates.  And we’ve maintained long equity exposure through the market gyrations.

Which brings us to the next slide. 9

And here is year to date contribution by factor. In aggregate for 2024, our biggest contributors have been gold and the Yen short, while bets on rising rates in the Treasury futures were upended when the market flipped to expectations of multiple rate cuts by year end. We’ve eked out gains in the Euro, and riding strength in developed markets equities have helped the portfolio. Oil has been flat and relatively directionless. All that said, Q3 was tough. Let’s hope Q4 looks more like Q1 and Q2 of this year.

And, with that, I’ll pass the baton back to Mike.

Mike:

Slide 10

Thanks Andrew — let’s wrap here as we always do with long-term performance.

So year to date 2024 through October, DBMF maintains its outperformance against its two key benchmarks – DBMF ahead of the Soc Gen CTA index by over 260 basis points annualized, and ahead of the Morningstar Systematic Trend Average by over 430 basis points annualized. The outperformance against the AGG, inclusive of dividends for both it and DBMF, is over 675 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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