Hedge fund approach that may trump bonds
Investors may want to rethink their bond allocation and opt for managed futures exposure.
DBi’s Andrew Beer suggests the popular hedge fund strategy could deliver a modern twist to traditional 60/40 portfolios.
“[Bonds have] been dead money for the entire decade,” the firm’s co-founder and managing member told CNBC’s “ETF Edge” this week. “I fell in love with a strategy called managed futures because tactical is really good. Be nimble when other people’s [portfolios] aren’t.”
Beer contends the managed futures strategy, historically only available to hedge funds, could counterbalance stocks better than bonds during periods of volatility, which has been moving higher due to recent worries surrounding debt and the artificial intelligence trade.
His reason: Managed futures exchange-traded funds can go long and short across global markets to position early against turbulent market events.
“You want something that has low correlation to both stocks and bonds, and something that will do well in crises,” Beer said. “It’s very, very hard to find a better hedge fund strategy than managed futures to accomplish that.”
He helps manage the iMGP DBi Managed Futures Strategy ETF (DBMF). The fund replicates the performance of leading managed futures hedge funds inside a low-cost, liquid ETF, according to the firm’s website.
“There’s an existential crisis right now in strategic asset allocation and the model portfolio world,” Beer said about the 60/40 approach. “I love my bonds … [but] I’m not making it a 40% allocation for something that is not adding to the rest of my portfolio.”
As of Thursday’s close, Beer’s ETF is up almost 19% so far this year, according to FactSet data.
However, managed futures may not be a replacement for bonds.
According to NovaDius Wealth Management’s Nate Geraci, bonds still have a place for diversifying a portfolio.
“I call fixed income the most challenging area in investing right now,” the firm’s president said in the same interview. “[Alternatives] fit in the sleeve of a well-diversified portfolio that includes stocks and bonds. But I don’t think you just give up on the bond side of the equation.”
Geraci added that investors should understand how alternative investment strategies like managed futures ETFs could interact with the rest of a portfolio.
These funds can outperform during volatile markets, but they may also have periods of underperformance.
“You have to let that work out over the long-term,” said Geraci, who is also an ETF Institute co-founder. “To me it’s just a balance. It’s all about diversification.”
