DBMF - DBMF: A Good Alternative Diversifier

2023-12-11 16:53:17 ET

Summary

• iMGP DBi Managed Futures Strategy ETF is a suitable choice for investors looking for alternatives in their portfolios.
• The DBMF ETF holds a diverse range of assets, including futures contracts in equities, fixed income, currencies, and commodities.
• The fund's unique position in the market and ability to take both long and short positions sets it apart from other ETFs.

Alternatives tend to do well in bear markets, and because one never knows when a bear market exactly starts, it's worth considering having alternatives in a portfolio most of the time in my view. The iMGP DBi Managed Futures Strategy ETF ( DBMF ) serves as a suitable choice for this objective. DBMF, an exchange-traded fund, or ETF, aspires for long-term capital growth by duplicating the pre-fee yields of the most prominent Commodity Trading Advisor hedge funds. Its design is to deliver performance, irrespective of the equity market's trajectory, granting access to some of the most liquid U.S.-based futures contracts. The portfolio's turnover is streamlined through a weekly rebalance frequency, keeping transaction costs to a minimum.

Detailed Analysis of DBMF Holdings

The ETF's holdings are dynamic, comprising predominantly derivatives, mostly futures contracts, and forward contracts. These contracts span several asset classes, including domestic equities, fixed income, currencies, and commodities. The Dynamic Beta Engine, a unique quantitative model, governs the allocation of the fund in domestic futures and forward contracts. This model scrutinizes the past 60-day performance of CTA hedge funds and subsequently identifies a collection of liquid contracts that can replicate the performance of the hedge funds.

Top 5 Individual Positions

1. SOFR Futures : These are Short-Term Interest Rate futures that are based on the Secured Overnight Financing Rate ((SOFR)). DBMF has taken a notable short position in 3-month SOFR futures, indicating a bet on where interest rates will be a few months from now.

2. 2-Year Treasury Futures : These futures are agreements to buy or sell a U.S. Treasury note with a maturity of two years at a predetermined price and a set future date. The ETF has a significant short position in these futures, suggesting an expectation of rising short-term interest rates.

3. 10-Year Treasury Futures : These futures are contracts to buy or sell U.S. Treasury notes with a maturity of ten years at a predetermined price and a set future date. The fund has a large short position in these futures, indicating an expectation of rising long-term interest rates

4. Crude Oil : DBMF has taken a short position in crude oil, predicting a decline in oil prices.

5. Gold : The ETF has a large long position in gold, suggesting a hedge against inflation or market volatility.

Sector Composition and Weightings

The sector composition of DBMF is diverse, reflecting its strategy to mimic the largest CTA hedge funds. The fund has exposure to a broad range of sectors, including equities, fixed income, currencies, and commodities. The exact weightings of these sectors fluctuate based on the fund's strategy and market conditions. However, the fund's exposure to these sectors is balanced to ensure optimal performance irrespective of the direction of equity markets.

Peer Comparison

Comparing DBMF with similar ETFs reveals its unique position in the market. The ETF's strategy to replicate the returns of the largest CTA hedge funds sets it apart from many other ETFs. Also, its use of a proprietary model for position determination and its exposure to a wide range of asset classes makes it unique.

While other ETFs might focus mainly on equities or fixed income, DBMF has a broader investment scope. This diversification reduces the risk associated with the fund and makes it a more stable investment option. Furthermore, its ability to take both long and short positions gives it an edge over many traditional ETFs.

Pros and Cons of Investing in DBMF

Pros

• Diversification : The fund's exposure to a wide range of asset classes provides excellent diversification, which can help reduce investment risk.
• Potential for High Returns : By replicating the strategy of large CTA hedge funds, the fund has the potential for high returns.
• Low Expense Ratio : With an expense ratio of 0.85%, DBMF is comparatively cheaper than investing directly in a hedge fund.
• Flexibility : The fund's ability to take both long and short positions allows it to profit in both rising and falling markets.

Cons

• Risk : Despite the diversification, investing in DBMF still carries risk, especially given the volatility of the futures market.
• Dependence on the Model : The fund's performance heavily depends on the accuracy of its Dynamic Beta Engine model.

Conclusion: Should You Invest in DBMF?

DBMF's diversified portfolio, potential for high returns, and low expense ratio make it an attractive option for investors. Although there are risks associated with investing in DBMF, its benefits seem to outweigh them. This is a fund that can be an excellent diversifier to an overall asset allocation.

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