Modeling the Benefits of Managed Futures Portfolio Inclusion

October’s inflation report sent markets soaring Tuesday as investors celebrated a hopeful end to Fed interest rate hikes. Though inflation continues to cool, there remains a potentially longer road ahead to get to the Fed’s desired 2%. In an environment of uncertainty and elevated inflation, the inclusion of managed futures in a portfolio made a significant difference in the last few years as modeled by DBi recently.

Hopes that inflation could truly be easing sent the S&P 500 rocketing up to close at its highest level since April. Meanwhile, 10-year Treasury yields dropped 0.2% points to 4.442% Tuesday morning. Investors are hopeful that the cooler inflation report marks the end of the Fed’s aggressive rate-hiking regime.

Diversification Proves Beneficial in Market Upheaval and Volatility

The last several years have been plagued by remarkable market turbulence. Inflation may be cooling, but much remains uncertain. Risk factors include the growing U.S. deficit, the impact of high rates on commercial real estate, geopolitical risk, and more. Though inflation continues to fall, it could be a long slog to reach the Fed’s desired 2%. That’s according to Federal Reserve Chair Jerome Powell at a press conference earlier this month.

In the period of instability and changing market regimes, managed futures continue to prove their worth as a non-correlated diversifier for portfolios. Andrew Beer, co-founder of DBi and co-PM of iMGP DBi Managed Futures Strategy ETF (DBMF), discussed the strategy and benefits in a recent video.

DBi modeled the performance of a traditional 60/40 portfolio compared to a portfolio comprised of 50/30/20. DBMF represented the 20% portfolio diversifier over a period from the fund’s inception in 2019.

Chart of the returns of a 60/40 versus 50/30/20 portfolio between April 2019 and October 2023.

Image source: DBi and iMGP

“The two portfolios were moving very closely together during the good period through the end of 2021,” Beer explained. “But then the real diversification value kicked in when inflation hit in early 2022.”