These 4 funds are the winners of 2022 – they use a hedge fund-like strategy to reduce risk

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Funds that follow managed futures strategies have significantly outperformed benchmarks this year.

They tend to have different approaches and can be risky. But for a typical investor whose majority of assets are invested in the stock market, having a modest portion allocated to managed futures can reduce overall portfolio risk, according to Mike Loewengart, managing director of investment strategy for Morgan Stanley E-Trade.

A managed futures strategy is a strategy whereby a fund manager will enter or exit various asset classes, including commodities, currencies, bonds and stocks in all geographies, using positions long and short to take advantage of market trends.

There is no crystal ball – managers do not predict events, but they will jump on a price trend or break away from it, hopefully at an early stage. This can lead to performance that runs counter to that of the broader stock market.

During an interview, Loewengart said, “There’s no doubt that in recent months we’ve seen increased interest in managed futures funds, and specifically the commodities space in general.”

Managed futures are a type of “liquid alternative” strategy that weren’t available to most investors until about 10 years ago when mutual funds started using the strategy, explained Loewengart.

“Before that, you had to look for a private vehicle,” he said, which meant being able to meet the high account minimum for a hedge fund.

“After years and years of seeing diversified portfolios lag behind as nothing has kept up with large-cap stocks, it’s encouraging to see these strategies delivering value to investors,” he added.

Four term funds managed

First, look at this year’s performance for four funds that use managed futures strategies against the benchmark S&P 500 Index SPX,
-0.13%
until May 12:

set of facts


All four managed futures funds have made gains this year, with the S&P 500 falling 17% (dividends reinvested). The best performer is up 32%.

It is important to review the longer periods. These are performances over two years:

set of facts


Now you can see that over a longer period, all five approaches have been viable, with the S&P 500 hitting the highest highs before falling to the middle of the pack.

Here is a breakdown of the four funds:

  • iMGP DBi Managed Futures Strategy ETF DBMF,
    -0.44%
    is the only listed index fund. It is actively managed and seeks to provide access to hedge fund-like strategies to seek long-term capital growth for relatively low fees. See this ETF Wrap column for Christine Idzelis’ interview with Andrew Beer of Dynamic Beta Investments (DBi).

  • The AlphaSimplex Managed Futures AMFNX strategy fund,
    -0.68%
    follows what it calls an “absolute return strategy,” using various asset models to take long and short positions in all types of assets, globally. It is included in the E-Trade list of Morgan Stanley All-Star Mutual Funds.

  • The Pimco Trends Managed Futures Strategy Fund PQTIX,
    +0.07%
    also follows a strategy designed to take advantage of price momentum across all types of assets, to provide positive returns “especially during stock market declines”.

  • The Standpoint BLNDX multi-asset fund,
    -0.51%
    follows a hybrid approach – it is invested around 50% in long equity and bond (mainly equities) positions through a group of ETFs, with the remainder invested in a managed long and short futures strategy, on all types of assets. Its performance on the two-year chart, above, confirms the strategy. You can find out more about the fund here. Eric Crittenden, co-manager of the Standpoint Multi-Asset fund, wrote in an email that he had increased short exposure to bonds this year, while increasing long exposure to the dollar against other currencies. He also reduced what he described as “significant” long exposure to commodities while increasing “modest” long exposure to energy markets. “The theme here is stagflation, and it’s not expected to be smooth or fun. It’s by far the most difficult market environment to navigate as an investor,” he said. -he writes.

  • The three mutual funds listed above (i.e. excluding DBMF) ​​have multiple classes of shares. The charts show the institutional share classes, which have the lowest spend and the highest account minimums. But some brokers are able to offer institutional stocks to their clients with lower account minimums.

Loewengart said Class A (or Investor Class) shares of the funds are available without sales charges at E-Trade and most other major brokers, although prospectuses may list sales charges.

Category A symbols for mutual funds are:

  • AlphaSimplex Managed Futures Strategy Fund AMFAX,
    -0.61%.

  • Pimco Trends Managed Futures Strategy Fund PQTAX,
    +0.15%.

  • AlphaSimplex REMIX Managed Futures Strategy Fund,
    -0.51%.

Avoid “performance chasing”

“My concern concerns the search for performance. Investors can walk in, looking at recent results, not being fully aware” of the risks, Loewengart said.

The hunt for performance is a phenomenon that also affects investors within equity strategies. They could funnel money into “last year’s best performing stock fund” without considering that they could buy high and underperform the following year.

Loewengart pointed out that “commodities performed well during this period of volatility once inflation subsided.”

It is therefore a special period for commodities and managed futures funds. Now take a look at a five-year chart for the AlphaSimplex Managed Futures Strategy Fund, the Pimco Trends Managed Futures Strategy Fund and the S&P 500. (The other two funds are less than five years old):

set of facts


This shows the risk of managed futures strategies. They’re “living their moment,” Loewengart said, outperforming during this difficult period of high inflation and rising interest rates. But they missed part of the bull market that preceded the downturn.

“By themselves, managed futures strategies may not be suitable for many investors. But when you include them in a well-diversified portfolio, you can reduce portfolio risk over time,” Loewengart said.

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