‘Managed futures are like pigs in mud’: This ETF manager is replicating hedge-fund strategies to pull off big gains as stocks and bonds drop this year

Hello! Market jitters remain high this week as stocks continue to fall, with Cathie Wood’s ARK Innovation ETF standing out in the recent carnage.

“We have entered a new era that will challenge many of the ways people made money,” said Andrew Beer of Dynamic Beta Investments, or DBi. In this week’s ETF Wrap, Beer, co-portfolio manager of the iMGP DBi Managed Futures Strategy ETF DBMF
talks about the strategy behind the fund’s double-digit gains so far in 2022.

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Turbulent markets are punishing portfolios, but a small corner of the exchange-traded funds sector appears to be doing relatively well amid investor concerns about rising interest rates and high inflation.

So-called managed futures — a quantitative-based strategy that attempts to capitalize on market trends by betting long and short on futures contracts in commodities, rates, currencies and stocks — is doing well, according to Andrew Beer, co-portfolio manager of the iMGP DBi Managed Futures Strategy ETF DBMF
in Dynamic Beta investments.

That’s a strategy typically associated with the hedge fund industry.

“This year, managed futures are like pigs in the mud,” Beer said in a telephone interview. “They are so happy because there are many different ways they can make money” in a market where both stocks and bonds have suffered losses this year, he said.

Dynamic Beta investing, or DBi, replicates managed futures strategies used by hedge funds, but charges a lower fee when offering their investment strategy through an ETF, Beer said.

Shares of the iMGP DBi Managed Futures Strategy ETF are up 23.5% this year through Wednesday, according to data from FactSet. That compares to a 14% gain for the First Trust Managed Futures Strategy Fund FMF
over the same period and a 0.6% increase for shares of the WisdomTree Managed Futures Strategy Fund WTMF
Show FactSet data.

By contrast, shares of the SPDR S&P 500 ETF Trust SPY
which tracks US stocks are down about 17% through Wednesday this year, while the iShares Core US Aggregate Bond ETF AGG
is down nearly 10%, according to data from FactSet.

Beer said the iMGP DBi Managed Futures Strategy ETF, which has approximately $175 million in assets, manages hedge fund performance data from the SG CTA Index through an “advanced risk model” that tells DBi which positions are yielding returns.

“Every Monday we rebalance the portfolio,” he said, adding that the ETF can outperform hedge funds by a wide margin by cutting fees.

Last month, the iMGP DBi Managed Futures Strategy ETF gained 10.6%, beating the SG CTA Index’s 5.8% return, according to data from Beer.

“There’s a lot of alpha in hedge funds, but most of the time it goes to managers, not customers,” says Beer, explaining that the fees they charge take a relatively large bite out of returns. He said DBi’s managed futures ETF has a 0.85% fee.

US stock market is having another tough week and all three major stock benchmarks – the S&P 500 SPX
Dow Jones Industrial Average DJIA
and Nasdaq Composite COMP
— have fallen so far this month after a brutal April. Shares of the SPDR S&P 500 ETF Trust are down more than 4% in May, while the iMGP DBi Managed Futures Strategy ETF is up nearly 1%, data from FactSet shows at its latest check.

“We have entered a new era that will challenge many of the ways people made money,” Beer said, referring to the current environment of rising interest rates as the Federal Reserve tightens monetary policy in an effort to contain rising inflation. .

Read: US wholesale inflation slows in April, but prices are still up 11% over the past year

“This will be a wake-up call for many investors who didn’t realize in the 2010s how easy it was,” he said. “The more gritty, experienced macro investors both view this as one of the most dangerous and fraught markets they’ve seen, as well as one ripe for opportunity.”

Fifteen ETFs are trading more than 30% below their 200-day moving average, according to a note from Instinet’s Frank Cappelleri, emailed Wednesday after the stock market closes. Topping the list is Cathie Wood’s flagship ARK Innovation ETF ARKK
followed by the Renaissance IPO ETF IPO
Strengthen Transformational Data Sharing ETF BLOK
AdvisorShares Pure US Cannabis ETF MSOS
and the SPDR S&P biotech ETF XBI

INSTINET NOTE OF 11 MAY 2022

As usual, here’s your weekly look at the top and lowest ETF performers over the past week through Wednesday, according to data from FactSet.

The good…
best artists

%Performance

Vanguard Extended Duration Treasury ETF EDV

2.6

iShares 20+ Year Treasury Bond ETF TLT

2.2

Vanguard Long Term Treasury ETF VGLT

2.0

SPDR Portfolio Long Term Treasury ETF SPTL

2.0

iShares 10-20 Year Treasury Bond ETF TLH

1.7

Source: FactSet, through Wednesday, May 11, 2022 excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe-traded ETFs of $500 million or more

…the bad
%Performance

ARK Next Generation Internet ETF ARKW

-25.1

ARK Fintech Innovation ETF ARKF

-24.5

ARK Innovation ETF ARKK

-22.7

Invesco WilderHill Clean Energy ETF PBW

-20.7

Strengthen Transformational Data Sharing ETF BLOK

-19.6

Weekly ETF reads:

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