Investors may want to rethink their bond allocation and opt for managed futures exposure.
DBi’s Andrew Beer suggests a popular hedge fund strategy can give a modern twist to the traditional 60/40 portfolio.
“[Bonds have] It’s been dead money for a whole decade,” the company’s founder and board member said told CNBC’s “ETF Edge” this week. “I love the strategy called futures management because the tactics are really good. Be nimble when everyone else is [portfolios] not.”
Beer argues that managed futures strategies, historically only available to hedge funds, can balance stocks better than bonds over time volatilitywhich has moved higher due to recent worries about artificial intelligence debt and trade.
The reason: Managed futures exchange-traded funds can go long and short on global markets for early positions against turbulent market events.
“You want something that’s not related to stocks and bonds, and something that will do well in a crisis,” Beer said. “It’s very difficult to find a better hedge fund strategy than managed futures to accomplish.”
He helped organize it iMGP DBi Managed Futures Strategy ETF (DBMF). The fund mimics the performance of futures hedge funds managed inside low-cost liquid ETFs, according to the company’s website.
“There’s an existential crisis right now in the strategic asset allocation and model portfolio world,” Beer said of the 60/40 approach. “I love my bond… [but] I don’t make a 40% allocation to things that don’t add to my portfolio.
As of Thursday’s close, Beer’s ETF was up nearly 19% so far this year, according to FactSet data.
However, managed futures may not be a substitute for bonds.
According to NovaDius Wealth Management’s Nate Geraci, bonds still have room for portfolio diversification.
“I call fixed income the most challenging area to invest in today,” said the company’s president in the same interview. “[Alternatives] fit under 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 can interact with other portfolios.
These funds may outperform during volatile markets, but may have periods of underperformance.
“You have to allow it to happen over the long term,” said Geraci, who is also a co-founder of the ETF Institute. “For me it’s just a balance. It’s all about diversification.”