iMGP DBi Managed Futures Strategy ETF (DBMF)

The iMGP DBi Managed Futures Strategy ETF (DBMF) takes an entirely different approach to investing than stock or bond funds. Rather than buying and holding companies or lending to governments, it uses computer-driven trend-following strategies to trade futures contracts — bets on the future prices of oil, wheat, currencies, Treasury bonds, and stock indices. It is designed to make money when prices are rising or falling dramatically, making it a portfolio hedge that often gains when stocks lose.

What is a managed futures strategy?

Managed futures is not a traditional buy-and-hold strategy. Instead of picking companies you believe in and holding them for years, the fund uses algorithms that detect price trends in global markets and trade them using futures contracts — leveraged bets on the future prices of thousands of things: crude oil, soybeans, the Euro, Japanese equities, US Treasury bonds, gold, and more.

The basic logic is simple: if the price of soybeans has been rising for three weeks and the algorithm detects continued buying pressure, it takes a long position (betting on further rises). If the price of the German stock index has been falling and selling intensity increases, it takes a short position (betting on further declines). When the trend reverses, the algorithm reverses its position. The goal is to ride trends — whether up or down — and exit before they fully reverse.

This is fundamentally different from stock investing. A stock investor makes a bet that a company will be more valuable tomorrow than today, driven by earnings growth and competitive advantage. A trend-following investor makes a bet that a price in any market will continue its current direction, driven purely by momentum and supply-demand imbalances. These are different bets on different timescales.

How does DBMF profit during market crashes?

This is the crucial question, because it explains DBMF’s appeal. When stocks crash, they usually crash quickly and dramatically — a steep, visible downtrend. A trend-following algorithm detects that downtrend and takes a short position in equity index futures, betting on further declines. As the crash unfolds and the downtrend accelerates, the short position gains value. Simultaneously, equity futures typically rise in the future (there is a natural positive drift), but during a crash that gets overwhelmed by the current downtrend. The result: DBMF can make money during a stock crash, precisely when a normal buy-and-hold portfolio is losing money.

The same logic applies to bonds, currencies, and commodities. A flight-to-safety during a stock crash typically drives a strong decline in commodities prices (as investors dump risky assets to buy dollars and Treasury bonds). A trend-following fund detects that commodity downtrend and shorts commodity futures, again gaining value in the crash.

This is the entire reason for including DBMF in a portfolio. It is not meant to be a standalone investment; it is meant to hedge stocks and bonds. When everything else is losing money, DBMF (in a well-designed version) is often making it.

What are the real risks?

Managed futures are not a free lunch. Trend-following algorithms are most profitable when trends are strong and sustained. In choppy, sideways markets where prices jump up and down without a clear direction, the algorithms constantly get whipsawed — taking short positions that turn out to be against small uptrends, then reversing to long positions just before a downturn. This can be expensive. A market that oscillates between 100 and 105 repeatedly will kill a trend-following system.

There is also leverage risk. Many trend-following funds use leverage (borrowed money) to amplify returns. DBMF uses leverage as part of its strategy, which means its losses can be amplified in sideways or adverse markets. When every trend-following algorithm is trying to exit a losing position at once, liquidity can evaporate, creating cascade losses.

Finally, managed futures strategies are correlated with volatility. They tend to gain when markets are moving dramatically (up or down) and lose when markets are calm. That means they can create a form of whipsaw at the portfolio level: you own them to hedge crashes (which are volatile), but in calm bull markets they are a drag. A 40-year bull market with minimal crashes would be terrible for DBMF.

How is this different from other alternatives?

Long-short equity funds and absolute-return funds also try to make money in down markets, but they do so by picking individual stocks or sectors they believe will outperform. DBMF does not make stock-picking bets. It is pure trend-following on liquid, standardized futures across all major asset classes. That is both a strength (no single-stock risk, no active-management risk) and a limitation (no ability to pick winners, just to follow trends).

Volatility-targeting or risk-parity funds also provide portfolio diversification, but they rebalance on a predetermined schedule and hold positions mechanically. DBMF rebalances daily based on trend signals, which is more reactive and can be faster in catching emerging moves.

What does the portfolio actually hold?

DBMF does not hold stocks or bonds as assets. It holds positions in futures contracts, typically via a basket of index futures, commodity futures, currency forwards, and bond futures. The exact composition shifts daily as the algorithms detect and respond to trends. On a given day, it might hold long S&P 500 index futures, short crude oil futures, long 10-year Treasury futures, and short euro-dollar futures. The next week, the entire position set could be reversed.

The fund actually owns derivatives positions, which is more tax-efficient than holding individual stocks and bonds (futures have different tax treatment) and more liquid (it can exit any position in milliseconds), but it also means the fund does not generate dividends or interest income — all returns come from price movements on the futures trades.

Who should own this, and what should they know?

DBMF is not suitable for passive buy-and-hold investors seeking growth. It is for sophisticated investors building a diversified portfolio who want a hedge against stock and bond crashes and are willing to accept underperformance in calm, trending bull markets as the cost of that hedge.

Before buying, check the fund’s actual historical correlation to stocks and bonds during market declines. In a true crash (2008, 2020), did DBMF actually make money or at least lose less than a 60/40 stock-bond portfolio? Look at the expense ratio (typically 0.79–0.99% annually) and understand that active trading creates tax consequences even in a tax-deferred account, because the daily rebalancing crystallizes gains and losses internally. Read iMGP’s prospectus for the full details on how the trend-detection algorithms work and what futures contracts are traded. And most importantly: understand that this is a portfolio tool, not a standalone strategy. It should represent perhaps 5–20% of a broader portfolio, and it should be held with the understanding that it will underperform in long bull markets, which is exactly the price you pay for the protection you get in crashes.