Managed Futures ETF Launches

May 30, 2019

Today iM Global Partners and Dynamic Beta Investments rolled out a managed futures ETF. The iM DBi Managed Futures Strategy ETF (DBMF) is actively managed, using a proprietary quantitative model called the “Dynamic Beta Engine” in the prospectus.

DBMF comes with an expense ratio of 0.85% and lists on the NYSE Arca.

Diversified, Low-Cost Exposure

“We believe that investors today—probably more so than at any time over the last decade—really need products that can provide diversification,” said DBi Managing Member Andrew Beer, noting that by diversification, he means an investment that moves independently of stocks and bonds, and can perform well during a bear market.

Beer added that the fund is designed “to evaluate a portfolio of leading managed futures hedge funds—the kinds of hedge funds that large pension funds would invest in—and to deliver the performance of that diversified portfolio of hedge funds but in an ETF wrapper with reasonable fees.”

He notes that a lot of investors are frustrated by the high fees in the managed futures space, and that when they do, it’s a small part of their overall portfolio, so they tend to just invest in one fund, which can be very high risk.

“Our ETF is an actively managed ETF, but it’s designed to give you the look and feel as if you were investing in a broader index of CTA managers and trying to capture their returns before high fees,” Beer said.

Model Approach

The fund analyzes the exposures of the largest commodity trading advisor (CTA) hedge funds, and echoes those positions in its own portfolio, using long and short exposures to equity, fixed income, currency and commodity futures contracts with the goal of offering investors a diversified portfolio of CTA strategies and performance at a low cost. The portfolio is designed with liquidity in mind, and invests in only the most liquid contracts, according to the press release.

Based on the prospectus, DBMF implements a Cayman Islands-based subsidiary for holdings of commodity contracts, which can represent up to 10% of the funds assets. The underlying model analyzes the targeted CTAs and seeks to approximate their asset allocations in aggregate based on what is driving their performance. 

Beer says the portfolio generally only takes positions in 10 different contracts, and points out that research indicates that, in managed futures portfolios, the returns are driven by just two or three positions. The portfolio is also updated weekly to make sure it is reflecting the most recent information available, he adds. 

The document specifically notes that subadvisor Dynamic Beta Investments does not have the authority to deviate from the asset allocation and portfolio weights determined by the model, but it can review the types of investments used by the model and change them if necessary for the sake of efficiency.

Contact Heather Bell at [email protected]

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