Europe is set to gain its first exchange-traded fund (ETF) that aims to replicate the performance of the managed futures hedge fund industry, at a fraction of the cost. The iMGP DBi Managed Futures Fund R USD ETF, listed in Paris, will follow the same trend-following strategy as the $1.1 billion iMGP DBi Managed Futures Strategy ETF (DBMF) in the U.S. A London listing is also expected soon. The ETF’s fees are set at 0.75%.
Growing Popularity of Managed Futures ETFs
This move comes amid rising interest in managed futures strategies, particularly in the U.S., where major players like BlackRock, Invesco, and Fidelity have launched or filed for managed futures ETFs. These ETFs are gaining traction as investors seek uncorrelated returns, especially as part of diversified portfolios. The U.S. managed futures ETF market has grown substantially, with assets increasing from $300 million to $3 billion since 2019.
Andrew Beer, co-founder of DBi, emphasized the strategic benefits of managed futures: “Managed futures are one of the few alternative strategies with indisputable diversification benefits,” he said. This type of ETF allows investors to make money in both rising and falling markets, provided there is a clear trend to follow.
The Strategy Behind Managed Futures
Managed futures strategies, often run by commodity trading advisers (CTAs), involve taking both long and short positions in futures contracts linked to equities, bonds, commodities, and currencies. The idea is to follow price trends across asset classes, which can deliver returns even during market downturns.
Traditionally dominated by hedge funds, this momentum-surfing strategy has faced barriers for smaller investors due to high fees and access limitations. However, the rise of mutual funds and ETFs has provided more accessible and cost-effective options. U.S.-domiciled managed futures mutual funds now hold $15.2 billion, marking a 20% increase since 2020.
ETFs Offer Cheaper, More Liquid Alternatives
Managed futures ETFs offer a more liquid and typically cheaper alternative to hedge funds. According to Morningstar, nine U.S.-listed managed futures ETFs hold $2.9 billion, a tenfold increase since 2020. While JPMorgan previously operated a similar ETF in Europe, it closed in 2020. The Kronos Strategy ETP Securities, which trades U.S. equity futures, is the closest alternative available.
Beer expressed confidence in the potential of managed futures ETFs, stating, “I wanted to prove you can do as well, or even better, than hedge funds, but in the most client-friendly vehicle, which is ETFs.” He also criticized the performance fees common in mutual funds, questioning the rationale behind charging investors extra fees for performance-based incentives.
Performance and Potential Benefits
The iMGP DBi Managed Futures ETF aims to replicate the pre-fee performance of a representative basket of managed futures hedge funds like those run by AQR and AHL. The ETF uses an algorithm to track CTAs’ daily positioning, leveraging futures contracts linked to assets such as gold, oil, and the S&P 500.
Since its inception, the DBMF has delivered an average annual return of 7.3%, outperforming the 5.3% return of the SG CTA Index, which is burdened by higher fees.
Expert Opinions on Managed Futures
Kenneth Lamont, Principal of Research at Morningstar, praised the new ETF for its lower cost and potential to provide uncorrelated returns, but cautioned that the complexity of managed futures strategies may not be suitable for all investors. He explained, “Uncorrelated returns are the holy grail. That’s what everyone is looking for.”
Despite the complexities, Lamont acknowledged that managed futures could play an important role in a diversified portfolio, offering protection during periods of market volatility. He also noted that the democratization of finance, by making such strategies more accessible, is a positive development.
Challenges and Optimism for the Future
The managed futures space has faced challenges due to market fluctuations, particularly during the volatile period of Donald Trump’s second term as U.S. President. Beer acknowledged that the strategy had been closely tied to the “Trump trade,” which reversed, leading to losses. However, he remains optimistic, believing the current turbulence will be temporary.
Overall, the launch of the iMGP DBi Managed Futures Fund R USD ETF represents a significant step in making managed futures strategies more accessible to European investors, offering the potential for diversification and risk-adjusted returns.
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