Thinking Outside the Proverbial Box

Sometimes, especially during times of economic uncertainty, bank failures and high interest rates, it is best to play it safe and stay within the comfortable domain of well-known and safe sectors of the market.

After all, the demand from products in those sectors will always be high, regardless of wider economic conditions, as those are the goods that enable us to live the comfortable life that we have come to know. Returns from these stocks may not be extremely high, but they are safe, regular and somewhat predictable.

At other times, however, it is far wiser to take risks and plunge headfirst into sectors or areas of the market that may be less well-known or more risky than safer sectors. One such sector in the market is made up of a group of exchange-traded funds (ETFs) that are classified as uncorrelated, meaning that their portfolios are structured in such a way that they react much less than correlated stocks to fluctuations in the bond or equity markets.

Enter the iMGP DBi Managed Futures Strategy ETF (NYSEARCA: DBMF), an ETF that seeks long-term capital appreciation through the employment of long and short positions in derivatives, primarily futures contracts and forward contracts that involve equities, fixed income, currencies and commodities.

The goal here is to provide an alternative to traditional long-only and equity and fixed income strategies, which aren’t doing so well due to high inflation and the contagion in the banking sector, with an adaptive strategy that can invest in long and short equity, bond, currency and commodity and precious metal indexes.

In other words, the fund’s managers look at the moving day average of their proprietary Managed Futures trend-following system and calculate its trajectory. A movement upward means that the portfolio will go long. If the movement is downward, the portfolio will go short.

Top holdings in the portfolio include Treasury Bills, Japanese Yen Currency Futures June 2023, Euro FOREX Currency Futures June 2023, MSCI EAFE June 2023, S&P 500 EMINI Futures June 2023, Gold 100 Ounces Futures June 2023 and Three Month SOFR Futures September 2024.

As of May 16, 2023, this fund has been up 0.42% over the past month, down 7.02% over the past three months and down 8.59% year to date. This ETF has total net assets of $748 million and an expense ratio of 0.85%.

Chart courtesy of StockCharts.com.

DBMF is not your typical ETF in terms of the way that it’s structured, and investors should be aware of the risks associated with investing in such a fund and always do their due diligence before adding any stock or fund to their portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.