‘Dead money’ for a decade: Why this hedge fund approach may deliver an advantage over bonds

Andrew Beer, co-founder and managing member at Dynamic Beta investments (DBi), argues that investors may want to rethink their conventional bond allocations and instead opt for managed futures exposure. Speaking recently on CNBC’s "ETF Edge," Beer suggested that this popular hedge fund strategy could inject a much-needed tactical twist into traditional portfolio designs.

"[Bonds have] been dead money for the entire decade," Beer told CNBC. "I fell in love with a strategy called managed futures because tactical is really good. Be nimble when other people’s [portfolios] aren’t."

Beer contends that the managed futures strategy, which has historically been restricted primarily to institutional hedge fund clients, could serve as a superior counterbalance to equities during periods of acute market volatility. Volatility has steadily climbed across global exchanges due to recent market anxieties surrounding mounting public debt burdens and the heavy capital expenditure associated with the artificial intelligence trade.

The core advantage of managed futures lies in their operational flexibility. Unlike traditional long-only asset classes, managed futures exchange-traded funds possess the capability to go both long and short across a vast array of global markets, including commodities, currencies, interest rates, and equities. This dynamic positioning allows the strategy to react early and effectively against turbulent market events, capturing trends regardless of whether markets are moving upward or downward.

"You want something that has low correlation to both stocks and bonds, and something that will do well in crises," Beer said. "It’s very, very hard to find a better hedge fund strategy than managed futures to accomplish that."

Beer helps manage the iMGP DBi Managed Futures Strategy ETF (ticker: DBMF), a vehicle designed to replicate the aggregate performance characteristics of leading managed futures hedge funds, but delivered within a transparent, low-cost, and liquid exchange-traded fund structure. According to firm data, the strategy has experienced notable momentum, with Beer’s ETF rising nearly 19% for the year as of Thursday’s market close.

This performance stands in sharp contrast to the sluggish behavior of traditional fixed-income holdings over extended periods, fueling what Beer describes as a broader industry reckoning.

"There’s an existential crisis right now in strategic asset allocation and the model portfolio world," Beer said, addressing the limitations of the classic 60/40 model. "I love my bonds… [but] I’m not making it a 40% allocation for something that is not adding to the rest of my portfolio."

Despite the compelling performance and diversification arguments presented by proponents of alternative strategies, veteran market watchers emphasize that managed futures should not be viewed as a wholesale replacement for traditional bonds. Nate Geraci, president of NovaDius Wealth Management and co-founder of the ETF Institute, offers a more measured perspective on the role of fixed income within a holistic portfolio construction framework.

"I call fixed income the most challenging area in investing right now," Geraci said during the same interview. He maintains that while alternatives offer unique tactical advantages, they must be integrated carefully alongside traditional asset classes rather than supplanting them entirely.

"[Alternatives] fit in the sleeve of a well-diversified portfolio that includes stocks and bonds. But I don’t think you just give up on the bond side of the equation," Geraci added.

Geraci stresses that investors must develop a comprehensive understanding of how alternative investment strategies, such as managed futures ETFs, actually interact with the broader components of their portfolios during varying economic cycles. While these sophisticated funds have proven their ability to outperform during periods of market stress and heightened volatility, they are not immune to cyclical headwinds and can experience distinct phases of underperformance when market trends flatten or reverse abruptly.

Because of this cyclical nature, investors cannot treat managed futures as a short-term trading vehicle or a guaranteed hedge against every minor market pullback. Instead, navigating these strategies requires patience and a commitment to long-term asset allocation principles.

"You have to let that work out over the long-term," Geraci said. "To me it’s just a balance. It’s all about diversification."