Managed futures strategies have become an increasingly popular diversifier for portfolios in the current market environment of volatility and underperformance of equities and bonds. DBMF takes a unique approach in its strategy: it seeks to capture the performance of hedge fund-managed futures strategies within the ETF wrapper, offering savings and alpha potential for investors.
“When you outperform by cutting out fees and expenses, the goal is to consistently rise in the rankings: top quartile after three years and top decile after five. DBMF is on track to achieve this,” said Andrew Beer, co-portfolio manager of DBMF and managing member at Dynamic Beta investments, the fund’s sub-advisor, in a communication to VettaFi.
The position that the fund takes within domestic managed futures and forward contracts is determined by the Dynamic Beta Engine. This proprietary, quantitative model attempts to identify how the largest commodity-trading advisor hedge funds have their allocation by analyzing the trailing 60-day performance of CTA hedge funds. It determines a portfolio of liquid contracts that would mimic the hedge funds’ performance (not the positions), offering similar performance with greatly reduced fees.
“It is unprecedented to have a managed futures ETF with the same Morningstar rating as more expensive mutual funds run by hedge fund industry luminaries like Man AHL and Abbey Capital,” Beer said.
DBMF is designed to capture performance regardless of which direction equity markets are moving and adds diversification for portfolios because of its lack of correlation to both traditional equities as well as bonds. It is an actively managed fund that uses long and short positions mostly via futures contracts and forward contracts; these contracts span domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary).
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. Under normal market conditions, the fund seeks to maintain volatility between 8%–10% annually.
“The problem with most five-star funds is that they got lucky then the world changed. Our goal is for clients to look back in five years and have experienced consistent, reliable outperformance, and avoid the well-documented whipsaws of chasing hot dots,” explained Beer.
For more news, information, and strategy, visit the Managed Futures Channel.