It was a phenomenal year for most managed futures funds that utilize a strategy that capitalizes on market volatility, dislocations, and shifting trends. With volatility expected to continue well into next year and continued large moves by markets as the Fed continues its inflation fight, managed futures are well positioned for the new year.
“There are several key challenges impeding a return to a calm economic environment, making it improbable that economic conditions will settle into anything resembling their pre-pandemic stability within the next year or two at a minimum,” according to AQR Capital Management.
Managed futures take long and short positions on a range of asset classes through the futures market, positioning based on how stocks are actually trading instead of based on forward estimates. They capitalize on market volatility and changing market trends, using quantitative analysis to track trends in assets.
They’re called the crisis alpha generators because of their historic outperformance during times of market volatility, a trend that is anticipated to last well into 2023 as macroeconomic volatility persists. Because these funds are a trend following strategy, they also don’t have a mean-reversion property, Yao Hua Ooi, principal at AQR, told ; a year of outperformance doesn’t equate to a year of bad performance the following year.
“For those two reasons, we are trying to help investors focus more on the long-term diversification benefit of adding managed futures to their portfolio and not be so worried about timing,” Ooi said.
For advisors that may be worried about having missed the boat on managed futures, there is still a wealth of opportunity in at least the next year as the strategy is likely to benefit particularly in a rising rate environment, according to Jon Caplis, CEO of PivotalPath. Aside from the performance potential, these strategies have proven a noteworthy hedge for portfolios in the last year against inflation and rising rates.
The iMGP DBi Managed Futures Strategy ETF (DBMF ) has been a strong performer and immensely popular choice for advisors and investors alike in the challenging environment of 2022.
The fund seeks long-term capital appreciation by investing in some of the most liquid U.S.-based futures contracts in a strategy utilized by hedge funds and has 21.26% as of 12/07/2022. It has over $1 billion in AUM and is the largest of any managed futures ETF.
DBMF allows for the diversification of portfolios across asset classes uncorrelated to traditional equities or bonds. It is an actively managed fund that uses long and short positions within the futures market on several asset classes; domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary).
The fund’s position within domestically managed futures and forward contracts is determined by the Dynamic Beta Engine, which analyzes the trailing 60-day performance of CTA hedge funds and then determines a portfolio of liquid contracts that would mimic the hedge funds’ averaged performance (not the positions).
DBMF takes long positions in derivatives with exposures to asset classes, sectors, or markets that are anticipated to grow in value and takes short positions in derivatives with exposures expected to fall in value.
DBMF has an expense ratio of 0.95%.
