2Sem.·

Hedge funds in an ETF wrapper

I don't have the time to write a detailed explanation right now, but I don't want to withhold the following from you, so I'll keep it short, but I will link to sources that you can browse through if you are interested in the topic.

There is a relatively new ETF that attempts to track the mean value of various trend following hedge funds. Also known as managed futures.

$DBMFE (-1,21 %)

Advantage, compared to classic hedge funds:

-Lower costs

-Flexible trading

-no manager risk

-no high capital thresholds, anyone can invest

Why should you care?

Managed futures have almost no correlation with the stock market and are often referred to as "crisis alpha", as they tend to perform better when there is a clear upward or downward trend.

To put it simply:

When the market is doing really well or really badly, managed future strategies perform best, but have problems in "kangaroo markets".

Who is this interesting for?

For anyone who wants to smooth out volatility in their portfolio or is looking for a source of return that is uncorrelated to equities.

Please remember that uncorrelated and negatively correlated are two different things. 😅

Managed futures are not voodoo and have been well researched in the academic literature since the 1980s.

Here is a recent study:

https://people.duke.edu/~charvey/Research/Published_Papers/P140_The_best_of.pdf

(at some point I'll link a porno, nobody reads the sources anyway ;)

Here is a summary that is better than anything I could ever write:

https://www.imgp.com/documents/iMGP_The_Case_for_Managed_Futures_in_an_Investment_Portfolio.pdf

Still, please treat with caution as it comes directly from DBi and they want you to buy the ETF.

For investors in Austria:

CAUTION! At the moment it is still a non-reporting fund!

If you don't know what it is, then stay away or you will get a nasty surprise from the tax office at the beginning of the year.

Hedge funds in an ETF wrapper, what do you think?

😘

12 Commentaires

Uwe@SchlaubiSchlumpf

2Sem.

Now I've had to read up a bit more. So essentially it would be relevant for me at most as an addition to the multifactor portfolio, in perspective I lower my volatility somewhat more than my return if I add it, for example, 10%?

Interesting in any case.
I think I can ignore it for several reasons:

1) long investment horizon; almost 35 years to go. So I still have time diversification
2) more in the portfolio than previously planned: only when prices fall by around 30% will I be at the portfolio size I should have according to my original planning. So I have some room for risk
3) whether the implementation works would also be a bit of luck, because you don't yet know whether the fund will do what it's supposed to.

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TotallyLost@TotallyLost

2Sem.

@SchlaubiSchlumpf If you can withstand the drawdown, you don't really need such a product.

It has been available in the USA for some time $DBMF.
The important thing is to rebalance it regularly.

Keyword:
Shannon's Demon - a positive return can be achieved if the underlying assets themselves have no long-term upward return at all - as long as they fluctuate.

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Uwe@SchlaubiSchlumpf

2Sem.

@TotallyLost Yup though it should generally work better if they have a positive upside.
I would say at 10% allocation the benefit is already acceptable compared to the cost. I think 10-15% should be a sweet spot for many reasonably long-term investors.

However, I make the assumption at 4%. If the return fluctuates around 0 or is even negative, I think I would tend towards cash.

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Uwe@SchlaubiSchlumpf

2Sem.

@SchlaubiSchlumpf Incidentally, GTAA could fulfill a similar purpose (low correlation). Only with absurdly higher volatility

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TotallyLost@TotallyLost

2Sem.

@SchlaubiSchlumpf At its core, the 3xGTAA is a trend follower.
The big difference is that it is long only and reacts much more strongly to short intensive trend breaks.

In addition, the GTAA has a non-negligible model / manager risk.

And you can assume that tail risk manifests itself precisely when the rest of the market is also heading south.

This is also the reason why I started selling the tips.
If the 3xGTAA makes up more than 3.5% of the portfolio and then has another > +5% day, I trim it to 3%.
Conversely, I would also top it up again at -30%.

Which is not to say that managed future funds don't also regularly explode.
The dispersion between the best 10 and the worst 10 funds is massive and much greater than with equity funds.

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Uwe@SchlaubiSchlumpf

2Sem.

@TotallyLost oh crap now I wrote 3 paragraphs, swiped to the side and it deleted the text.

But yes, the problem is that GTAA correlates strongly at times and only less strongly on average. Depending on how high the equity share is at the time.

Because of the risks you mentioned I completely avoid rebalancing and try not to see it as part of my portfolio, which is sometimes hard for me because getquin has the aggregated approach where I somehow pick it up after all

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Epi@Epi

2Sem.

Thanks for the introduction!

But 4.1%pa since 2000 is not the world. Is it worth the trip into the uncertain world of hedge funds?

A $XEON almost manages 4.1%pa and a $XDEM beats that hands down.

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TotallyLost@TotallyLost

2Sem.

@Epi Where did you get the 4% from?
The best proxy is probably the SG CTA Index, which is at around 6% p.a.

https://www.rcmalternatives.com/fund/sg-cta-index-societe-generale-newedge-uk-limited/?hl=de-AT

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Epi@Epi

2Sem.

@TotallyLost The yield of the SG CTA is shown on page 2 of the information brochure: 4.1%pa. 🤷

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TotallyLost@TotallyLost

2Sem.

@Epi sorry what?
You mean the 4.7% between 06/2019 and 06/2024 on page 2, right?

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Epi@Epi

2Sem.

@TotallyLost Your split document: https://www.imgp.com/documents/iMGP_The_Case_for_Managed_Futures_in_an_Investment_Portfolio.pdf p. 2, graphic on the right, partial graphic 1, green left bar.

Shows the performance of the index on which the ETF is based: Annualized Return since 2000: 4.1%. 🤷

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TotallyLost@TotallyLost

2Sem.

@Epi now I see where you are.

One thing to remember: from 1999 to 2009 we had a massive underperformance of equities and during that time positive returns were achieved.

It's a hedge against long bear markets, outperformance is not the goal.

But for 90% of all investors it is probably nothing.

I bought it once and use it as part of my reserve.
The lack of correlation makes it ideal for rebalancing.

And with a money market $ fund you would only have made about 1.5% p.a. from 2000 - 2025, not 4%, I have picked out a relatively old fund here.
https://www.bmo.com/main/personal/investments/mutual-funds/us-dollar/bmo-us-dollar-money-market-fund/

😘

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