Investors may want to rethink their bond allocation and opt for exposure to managed futures.
DBi’s Andrew Beer suggests the popular hedge fund strategy could bring a modern twist to traditional 60/40 portfolios.
“(Bonds have) been dead money for the entire decade,” said the company’s co-founder and managing member. ” said this week on CNBC’s “ETF Edge.” “I fell in love with a strategy called Managed Futures because the tactic is really good. Be nimble when other people’s (portfolios) aren’t.”
Beer argues that the managed futures strategy, historically reserved for hedge funds, could better offset stocks than bonds during periods of sharp declines. volatilitywhich has increased due to recent concerns over debt and the artificial intelligence trade.
Its reason: Managed futures exchange-traded funds can take long and short positions in global markets to position themselves early for market turbulence.
“You want something that has a low correlation to stocks and bonds, and something that will perform well in a crisis,” Beer said. “It’s very, very difficult to find a better hedge fund strategy than managed futures to achieve this.”
It helps manage the ETF iMGP DBi Managed Futures Strategy (DBMF). The fund replicates the performance of leading futures hedge funds managed within a low-cost liquid ETF, according to the company’s website.
“There is an existential crisis in strategic asset allocation and the world of model portfolios right now,” Beer said of the 60/40 approach. “I love my bonds…(but) I don’t allocate 40% to something that doesn’t add anything to the rest of my portfolio.”
As of Thursday’s close, Beer’s ETF was up nearly 19% year to date, according to FactSet data.
However, managed futures cannot replace bonds.
According to Nate Geraci of NovaDius Wealth Management, bonds still have their place to diversify a portfolio.
“I see fixed income as the most challenging area of investment right now,” the company’s president said in the same interview. “(The alternatives) fit within the framework of a well-diversified portfolio that includes stocks and bonds. But I don’t think you should just abandon the bond side of the equation.”
Geraci added that investors should understand how alternative investment strategies such as managed futures ETFs might interact with the rest of a portfolio.
These funds can outperform during volatile markets, but they can also experience periods of underperformance.
“You have to let this work over the long term,” said Geraci, who is also a co-founder of the ETF Institute. “For me, it’s just about balance. It’s all about diversification.”
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