iMGP DBi MANAGED FUTURES STRATEGY ETF | DBMF ETF Review

I’ve yet to witness the meteoric rise of a fund greater than iMGP DBi Managed Futures Strategy ETF DBMF.

In a year where most stock and bond allocations have had investors pulling their collective hair out, DBMF ETF has offered rip-roaring robust returns as a counterpoint.

Ah, the power of adding uncorrelated asset classes and strategies to your mix of long only equities and fixed income has been on full display in 2022.

Yet, it wasn’t always like this.

The 2010s were a particularly challenging decade for most Managed Futures strategies while efforts to diversify portfolios beyond large cap US growth stocks proved relatively futile.

Oh, how times have changed.

iMGP DBi MANAGED FUTURES STRATEGY ETF | DBMF ETF Review photo of a chameleon walking
source: dimitrisvetsikas1969 on Pixabay

Hey guys! Here is the part where I mention I’m a travel content creator! This investing opinion blog post ETF Fund Review is entirely for entertainment purposes only. There could be considerable errors in the data I gathered. This is not financial advice. Do your own due diligence and research. Consult with a financial advisor. 

iMGP DBi Managed Futures Strategy ETF DBMF
source: imgpfunds.com/im-dbi-managed-futures-strategy-etf

iMGP Global Partner Funds and DBi Dynamic Beta investments Partnership

DBMF ETF is a partnership between iMGP (iM Global Partner Funds) and DBi (Dynamic Beta investments).

Andrew Beer and Mathias Mamou-Mani head The New-York based team of Dynamic Beta investments with decades of experience in the alternative hedge fund space.

iMGP DBi Managed Futures Strategy ETF is the fund garnering all of the spotlight at the moment but an equally intriguing alternative ETF (DBEH) is a fascinating long-short equity hedge fund that Andrew and Mathias have also created.

We’ll focus most of our attention upon DBMF but we’ll also touch upon DBEH later on in the review.

Retro background representing a managed futures strategy for investing
source: Gam-Ol on Pixabay

The Case For Managed Futures Strategies In Your Portfolio

The forever swinging pendulum that rewards one particular strategy (at the expense of others) will at some point mean revert as a new economic regime emerges.

In this current high inflation regime, traditional long-only equity and fixed income strategies have revealed their Achilles’ heel whereas adaptive strategies with the capacity to go long and short equity, bond, currency, commodity and precious metal indexes have thrived.

Why?

Because of strong trends.

With equity and bond markets clearly down trend-following managed futures systematic style of investing has gracefully captured the short side of the equation.

On the other hand, strong upward trends across a broad set of certain commodities futures reveal the strategies dual capacity to also go long.

Being able to adapt to the current economic environment while not fighting reality is its greatest feature and certainly not in any way, shape or form a bug.

Hence, if the moving day average of the Managed Futures trend-following system is moving upwards it’ll go long.

If it’s moving downwards it’ll go short.

This system works brilliantly when trends are strong and falters when they’re not.

When do trends tend to be the strongest?

Specifically, they’re often strong in market regimes like the one we’re witnessing in 2022, where it’s clear certain things are downward trending (most equity, bond and currency indexes) whereas many commodities have been upward trending.

With the capacity to go both long and short across a globally diversified wide selection of indexes, DBMF ETF has been able to capture both sides of the coin.

It says “yes” to everything whereas long-only investments suffer when they’re on the wrong side of the current economic environment.

More importantly, Managed Futures Trend-Following strategies are uncorrelated with both stocks and bonds providing a tremendous diversification benefit for investors that carve out ample enough space for them in the alternative sleeve of their portfolios.

It’s easy to get excited and overly giddy about a needle in a haystack when it is performing outstandingly compared to just about everything else under the sun.

However, investors have typically jumped in and out of managed futures strategies (often at the worst of times) piling in like a Wildebeest herd after it’s performed well and bailing on it in droves in subsequent years when inevitable rough patches arise.

Savvy investors don’t view managed futures as a single line item but rather as an uncorrelated strategy (to long-only equities and bonds) that is worthy of a permanent asset allocation whereas “weak hands” investors will take a more fair-weather approach.


source: The Market Huddle on YouTube

DBMF ETF Overview, Holdings and Info

DBMF ETF sets itself apart from its competition by minimizing “single manager” risk by instead attempting to replicate the pre-fee performance of leading managed futures hedge funds without the exorbitant fees. 

Hence, bringing institutional level hedge fund strategies to retail investors at an affordable cost well below industry standard.

It has the capacity to go both long and short Global equity, bond, commodity and currency indexes via futures contracts and forward contracts.

A portfolio breakdown (6/30/22) is as follows:

DBMF ETF Portfolio Asset Class Exposure

DBMF ETF Portfolio Breakdown as of 2022/06/30 with Asset Class Exposure to Commodities, Global Equities, Currencies and Fixed Income
source: imgpfunds.com/

What’s immediately apparent is that the fund is predominantly taking short positions across the board with Global Equities, Currencies and Fixed Income with the lone long shining star of Commodities.

It’s important to keep in mind that these are dynamic and not static positions.

If you’re reading this article several months (or even a year later) you’ll likely notice a radically different outcome.


source: Raise Your Average on YouTube

DBMF ETF INFO

Ticker: DBMF
Net Assets: $1,046,521,137
Expense Ratio: 0.95%

With an all-in expense ratio of 0.95% iMGP DBi Managed Futures Strategy ETF can parade around the square with a victory lap because it has managed to bring double digit basis points fees to what is almost exclusively a triple digit basis point domain.

The fund has accumulated assets like there is no tomorrow seeing its biggest flows in 2022.

That’s all fine and dandy but how about the funds performance?

iMGP DBi Managed Futures Strategy ETF Performance

It’s one thing to talk about a fund’s strategy but it’s another to see how it has performed over the past couple of years.

What’s the best way to describe DMBF ETF returns versus the industry standard 60/40 portfolio?

Rocket-ship to the moon!

DBMF vs Global 60/40 Portfolio

iMGP DBi Managed Futures Strategy ETF vs iShares Core Growth Allocation ETF 60/40 Portfolio Returns
source: portfoliovisualizer.com

While DBMF has been compounding annually at 15.65% like a cool-cucumber since January 2020 poor little 60/40 has been choking at -0.67%.

Now while it’s fun to poke the bear (industry standard 60/40) at its expenses from time to time, how many investors out there are 100% committed to a Managed Futures strategy?

I’m guessing not too many.

But the case for carving out a considerable “alternative sleeve” to fit managed futures into the overall portfolio equation is indeed growing stronger when you consider how poorly a 60/40 portfolio has navigated the 2020s so far.

Let’s zoom-in a little to examine a couple of different time periods specifically.

DBMF ETF Performance: March 2020

DBMF ETF March 2020 vs 60/40 Portfolio
source: portfoliovisualizer.com

iMGP DBi Managed Futures Strategy ETF collected a few feathers for its caps in March 2020 relative to a globally diversified 60/40 portfolio by holding a steady defensive posture while the industry standard portfolio was rocked with a considerable drawdown.

From January 2020 until the end of March 2020 DBMF ETF was above water with a 0.09% return versus iShares Core Growth Allocation ETF (60/40 Portfolio) being down -13.50%.

DBMF ETF Returns 2022

iMGP DBi Managed Futures Strategy ETF DMBF vs 60/40 Portfolio in 2022
source: portfoliovisualizer.com

For those militant industry diehards who just can’t help themselves from continuing to trot out the 60/40 portfolio as the best game in town, the counterpoint to that argument has been the performance of DBMF ETF.

A long-only globally diversified 60/40 portfolio has been brutally bludgeoned in 2022 with a return of -20.75% whereas iMGP DBi Managed Futures Strategy ETF has had its moment in the spotlight with +31.57%.

The overall results between the two when compared directly are jaw-dropping to say the least.

DBEH + DBMF 60/40 vs Industry Standard 60/40

Let’s circle back to DBEH ETF as a potential replacement for the “60” of a long-only equity portfolio.

iMGP DBi Hedge Strategy ETF specifically “seeks to replicate the pre-fee returns of forty leading equity long/short hedge funds to deliver equity-like returns over time with less risk” and we’ll gladly count that as our equity alternative.

Now for the “40” part of the equation we’ll say goodbye to long-only bonds and hello to DBMF ETF.

We can think of this as the Quant 60/40 portfolio vs the Industry Standard 60/40.

Quant 60/40 Portfolio vs Industry Standard 60/40

Quant 60/40 vs Industry Standard 60/40 with DBEH and DBMF ETF
source: portfoliovisualizer.com

I wanted to first highlight the annual returns of DBMF ETF and DBEH ETF as individual line items to showcase that it hasn’t been iMGP DBi Managed Futures Strategy pulling all of the weight.

If you rewind back to 2020 it was DBEH that picked up the tab with a return of 23.42%.

Let’s look at the bigger picture.

Quant 60/40 Portfolio vs Industry Standard 60/40 Portfolio DBEH and DBMF ETF
source: portfoliovisualizer.com

If returns meets risk management is your primary investing goal, the results of a DBEH 60% / DBMF 40% portfolio since 2020 are most impressive with a CAGR of 11.10% and RISK of 8.83%.

Poor ‘ole 60/40 hobbles across the finish line below water with a CAGR of -0.67% and RISK of 13.34%.

That’s a lot of volatility for one to endure for such awful results.

Noteworthy is that the combined DBEH 60% / DBMF 40% has double digit returns with only single digit standard deviation.


source: VettaFi on YouTube

Pros and Cons for DBMF ETF
source: pixabay

DBMF ETF PROS AND CONS

Let’s keep things rolling by summing up the pros and cons of DBMF ETF.

DBMF PROS

  1. Tremendous uncorrelated “diversification puzzle piece” for long-only equity and bond investors to add in the alternative sleeve of the portfolio
  2. The ability for the fund to go both long and short across global equity, bond, commodity and currency indexes.
  3. An all in management fee of 0.95 bringing double digit basis points affordability for what has historically been a high triple digit fee strategy (both trades and manager performance incentives)
  4. Retail investors now have access to a strategy that has typically been reserved for high net worth individuals and institutions
  5. Crisis alpha performance during both March 2020 and all of 2022 up until October
  6. The ability for you to support boutique level creativity and ingenuity from Andrew and Mathias over at Dynamic Beta investments

DBMF CONS

  1. Although we mentioned the fees being reasonable for this type of strategy you’ll still find investors not willing to pay that much for a fund these days
  2. Investors not realizing tracking error also refers to when times are not so rosy such as the 2010s when managed futures strategies struggled
DBMF ETF as a puzzle piece for a portfolio
source: pixabay

DBMF Potential Portfolio Solutions

Let’s consider a number of different ways DBMF ETF can slot into a portfolio at large.

Factor Focused Quant Portfolio

For DIY investors seeking an easy to put together globally diversified factor focused portfolio with an alternative sleeve as a feature (and not a bug) let’s check out the following:

40% $AVGE
20% $DBEH
30% $DBMF
10% $TYA

Here we’ve got long-short equity DBEH as a “satellite” puzzle piece as opposed to being a total equity replacement with newly released AVGE providing global core equity with factor tilts.

DBMF takes care of our alternative sleeve and we’re making a bit of room for fixed income with capital efficient TYA providing 3X intermediate treasury coverage.

Overall, we’re globally and strategically diversified with this model portfolio 4 fund combo.

Expanded Canvas Portfolio

For investors seeking “capital efficiency” and an overall expanded canvas portfolio as the end-game let’s consider the following:

20% $GDE
10% $NTSI
10% $NTSE
20% $DBEH
30% $DBMF
6% $TYA
4% $CYA

We keep our allocations to DBEH and DBMF exactly the same while making room in the portfolio to add “Gold” and “Long Volatility” as additional ingredients to the pancake mix.

This portfolio covers the bases nicely IMO.

Standard Milquetoast Portfolio

For those that are willing to die on the 60/40 hill we’ve got you covered too.

80% AOM
20% DBMF

Look at you in your fancy pants!

With merely a satellite allocation to DBMF ETF you’ve now turned your 60/40 portfolio into a 50/30/20 configuration.

Nomadic Samuel traveling around Cape Breton, Nova Scotia, Canada
Nomadic Samuel traveling around Cape Breton, Nova Scotia, Canada

Nomadic Samuel Final Thoughts

DBMF is a thoroughbred product that deserves every bit of the spotlight it has been receiving of late.

Hanging out in Managed Futures territory was a lonely island back in the 2010s when anything other than US growth stocks handcuffed to Aggregate bonds was the norm.

Oh, how the tables have turned.

Investors, especially those without 2008 scars, are learning first hand that the “so called” stable 60/40 portfolio of long-only equities and bonds is more like the Titanic than they had previously considered.

It can sink.

Fortunately, there are options to diversify beyond just stocks and fixed income.

You’ve got alternatives now available as ETFs that you can easily integrate into your portfolio.

Whether you shave down equity and bond allocations to make room or you build an expanded canvas portfolio from the ground up utilizing capital efficient products is entirely up to you.

But the days of just equities, bonds and chill seem to be over.

And if they’re not, maybe more lessons will be delivered harshly in the coming years for those who are rigid and fixed in their ways.

That’s all I’ve got for today.

What do you think of DBMF ETF?

DBMF has made it into the mix of ETFs in my DIY portfolio.

Let me know in the comments below.

Ciao for now!

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20 Comments

  1. says: Kellan

    I think you can take the performance of the SocGen Trend Index (which DBMF tracks pretty well if I understand it right) all the way back to the 2000’s, which further illustrate it’s fit for a reasonably diversified portfolio.

  2. Thank you for putting the spotlight on Managed Futures and Trend Following and I agree Andrew deserves a lot of credit for what they have achieved with their ETF and for being a great promoter of the benefits of including Trend Following/Managed Futures in a portfolio. But as I discussed with Andrew in our recent podcast episode, there are other risks in replicating quant models, trading just once a week that we have not seen yet that investors should be aware of. The worst thing that could happen to our industry is that we see a massive inflow to these strategies (which has already happened) and that investors get a negative surprise from these type of products as we have seen before, when cheap solutions tries to compete with the decades of experience from established managers. Let’s hope this time really is different.

  3. says: Evan

    Is DBEH really worth it? I think a 60/40 VTI/DBMF would be an illuminating comparison. Returns are pretty similar over the short time period DBEH has been available, although the DBEH 60/40 is less volatile. In general I would trust Mr Market over any actively managed equity fund.

    It’s also worth mentioning that KMLM employs a similar strategy and has also had a great year. It tracks very closely with ASFYX (much cheaper ER though) which itself has about a decade of history to give you some feel of how these investments work. KMLM has a higher target volatility so it doesn’t need to take up as much portfolio space to provide the same diversification benefit.

    Buyer beware: none of these ETFs are suitable for a taxable brokerage account.

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