‘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

By Christine Idzelis

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

“We’ve entered a new era that is going to really challenge a lot of the ways people were making money,” says 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 (PSE: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 one small corner of the exchange-traded fund industry appears to be faring relatively well amid investor anxiety over rising rates and high inflation.

So-called managed futures — a quantitative-based strategy that seeks to capitalize on market trends by making long and short bets on futures contracts in commodities, rates, currencies and equities — is having a good run, according to Andrew Beer, co-portfolio manager of the iMGP DBi Managed Futures Strategy ETF (PSE:DBMF) at Dynamic Beta investments. 

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

“This year managed futures are like pigs in mud,” Beer said in a phone interview. “They’re so happy because there are a lot of different ways for them to make money” in a market where both stocks and bonds have seen losses this year, he said.

Dynamic Beta investments, or DBi, is replicating managed futures strategies used by hedge funds, but charging lower fees in offering its investment strategy through an ETF, according to Beer. 

Shares of the iMGP DBi Managed Futures Strategy ETF have jumped 23.5% this year through Wednesday, according to FactSet data. That compares with a 14% gain for the First Trust Managed Futures Strategy Fund (PSE:FMF) over the same period and a 0.6% rise for shares of the WisdomTree Managed Futures Strategy Fund (PSE:WTMF) , FactSet data show.

By contrast, shares of the SPDR S&P 500 ETF Trust (PSE:SPY) , which tracks U.S. stocks, have tumbled around 17% this year through Wednesday, while the iShares Core U.S. Aggregate Bond ETF (PSE:AGG) has fallen almost 10%, according to FactSet data.

Beer said the iMGP DBi Managed Futures Strategy ETF, which has around $175 million of assets, runs hedge fund performance data from the SG CTA Index through a “sophisticated risk model” that tells DBi which positions are driving returns.

“Every Monday we rebalance the portfolio,” he said, adding that the ETF may outperform hedge funds “by a wide margin by cutting out 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 provided by Beer.

“There’s plenty of alpha in hedge funds but usually it goes to managers, not to clients,” said 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.

The U.S. stock market is having another tough week and all three major stock benchmarks — the S&P 500 (S&P:SPX) , Dow Jones Industrial Average (DOW:DJIA) and Nasdaq Composite (NASDAQ:COMP) — are down so far this month after a brutal April . Shares of the SPDR S&P 500 ETF Trust have sunk more than 4% in May, while the iMGP DBi Managed Futures Strategy ETF is up nearly 1%, FactSet data show, at last check.

“We’ve entered a new era that is going to really challenge a lot of the ways people were making money,” said Beer, referring to the current environment of rising interest rates as the Federal Reserve tightens its monetary policy in an effort to bring soaring inflation under control.

Read: U.S. wholesale inflation slows in April, but prices still up 11% in the past year

“This is going to be a wake up call for a lot of investors who during the 2010s didn’t realize how easy it was,” he said. “The more grizzled, experienced macro investors both look at this as one of the most dangerous and fraught markets they’ve seen but also one that’s ripe with opportunity.”

Fifteen ETFs are trading more than 30% below their 200-day moving averages, according to a note from Instinet’s Frank Cappelleri that was emailed Wednesday after the stock market’s close. At the top of the list is Cathie Wood’s flagship ARK Innovation ETF (PSE:ARKK) , followed by the Renaissance IPO ETF (PSE:IPO) , Amplify Transformational Data Sharing ETF (PSE:BLOK) , AdvisorShares Pure U.S. Cannabis ETF (PSE:MSOS) , and the SPDR S&P biotech ETF (PSE:XBI) .

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

The good…

…the bad

Weekly ETF reads:

• As Ark’s flagship fund plunges 76% from its peak, Cathie Wood still views her stocks as residing in ‘deep value territory’ (MarketWatch)

• Tumble in Coinbase pushes Wood’s ARK fund closer to pandemic low (Reuters)

• Cathie Wood’s Famed Market-Beating Return Is Disappearing (Bloomberg)

• Grayscale tells SEC that turning biggest bitcoin fund into ETF will unlock $8 billion for investors (CNBC)

• Dimensional, JPMorgan Flip Billions From Mutual Funds Into ETFs (Bloomberg)

• These Bond ETFs Are Floating Around Rate Hike Risks (ETF Trends)