Investors may need to reconsider their bond allocation and instead consider managing their futures exposure.
The Andrew Beer of DBi indicates that this popular hedge fund strategy may bring a modernized variant to the traditional 60/40 investment portfolio.
“Bonds have always been ‘dead money’ over the past decade,” said the co-founder and managing member of this company in an interview with CNBC’s ETF Edge this week. “I fell in love with a strategy called managed futures because it’s truly tactical and very useful. It’s essential to remain agile when others’ portfolios are not flexible.”
Beer believes that managing futures strategies has historically been only accessible to hedge funds, but during periods of volatility, they may be more effective at hedging stocks than bonds; moreover, recent concerns regarding debt and artificial intelligence trading have led to a continuous increase in volatility.
His reasoning is that managing exchange-traded funds (ETFs) in the futures market allows for long and short positions to be taken in global markets, thereby enabling early positioning in response to turbulent market events.
"What you need is a tool that has a low correlation with both stocks and bonds, and that performs well during crises," said Beer. "It's extremely difficult to find a hedge fund strategy that is better than managing futures to achieve this."
He is involved in managing iMGP DBi Managed Futures Strategy ETF ( DBMF ). According to the company's website, this fund replicates the performance of leading managed futures hedge funds in the low-cost and highly liquid ETF.
When discussing the 60/40 strategy, Beer said: 'The fields of strategic asset allocation and model portfolio composition are currently facing a crisis of survival. I really like bonds... but I wouldn't allocate 40% of my portfolio to something that doesn't add value to the rest of my investment portfolio.'
As of the close on Thursday, data from FactSet shows that this ETF managed by Beer has risen by nearly 19% so far this year.
However, managing futures may not necessarily be able to replace bonds.
Nate Geraci believes that bonds still play a role in diversifying investment portfolios.
"I believe fixed income is the most challenging area in current investments," said the president of this company in the same interview. "Alternative investments are suitable for a well-diversified portfolio that includes stocks and bonds. But I don't think you should give up on bonds altogether."
Geraci added that investors should understand how alternative investment strategies such as managing futures ETF interact with other parts of their investment portfolio.
These funds may perform exceptionally well in a volatile market, but there may also be periods when their performance is not so good.
"You must make it work in the long term," said Geraci, who is also one of the co-founders of ETF Institute. "In my opinion, this is just a matter of balance. It all comes down to decentralization."
