Managed Futures ETFs: The Stealth Diversifier in Chaotic Markets

In an era where traditional 60/40 portfolios face existential threats from rising correlations between stocks and bonds, investors are increasingly turning to non-correlated assets to weather volatility. Among these, managed futures ETFs like the iMGP DBi Managed Futures Strategy ETF (DBMF) have emerged as a niche but potent tool. Recent performance data from 2023 to 2025 underscores their ability to act as a counterweight to equity declines while offering a tactical hedge against macroeconomic shocks.

The Case of DBMF in Recent Volatility

During the April 2025 tariff-related sell-off, DBMF demonstrated its diversification value. While the Morningstar US Market Index dropped sharply, DBMF’s drawdown of just -1.2%—with a correlation of 0.33 to equities—showed its capacity to navigate turbulence. However, its initial exposure to long positions in developed-market equities (e.g., MSCI EAFE) and short euro positions initially lagged as equities fell. By mid-April, it pivoted to short Treasuries, long emerging markets, and opposing U.S. equity stances, illustrating its trend-following agility.

Three-Year Track Record: A Balanced Perspective

Over the three years ending March 2025, DBMF delivered a moderate annualized return of 1.7%, with low volatility (7.8%) and a maximum drawdown of -8.5%. Its -0.28 correlation to U.S. stocks made it a critical hedge during the 2022 equity-bond collapse, when both asset classes fell in tandem. Yet, its returns lagged during bull markets (e.g., 2023–2024), as trend-following strategies underperformed in rising equity environments.

How Managed Futures ETFs Work

Managed futures ETFs like DBMF profit by taking long or short positions across commodities, currencies, equities, and bonds, capitalizing on both upward and downward trends. This dynamic approach allows them to profit when other assets falter. For instance, during the 2025 sell-off, DBMF’s long gold and short euro positions offset equity losses, though its lingering bullish equity exposure temporarily boosted correlation to stocks.

Limitations and Considerations

While DBMF shines in volatile markets, its reliance on historical price trends introduces lag in adapting to abrupt shifts. During the April 2025 downturn, it initially struggled as it unwound equity longs. Additionally, its low long-term returns (1.7% annualized) and niche role mean it’s best used as a supplemental hedge, not a core holding.

Strategic Use in Portfolios

For investors, DBMF’s value lies in its ability to reduce portfolio drag during crises. Combining it with gold (e.g., GLD) and Treasuries (e.g., TLT) creates a layered defense. During the April 2025 sell-off, DBMF underperformed gold but outperformed equities, showcasing its complementary role.

Conclusion: A Niche Tool with a Clear Purpose

The data is unequivocal: DBMF has proven itself as a diversifier in volatile markets. With its negative correlation to equities (-0.28 over three years), it offers a critical buffer against tail risks. However, its limitations—lagging in bull markets, moderate returns—dictate strategic use. Investors should allocate sparingly (e.g., 5–10% of a risk budget) and pair it with other hedges to maximize resilience.

In a world where uncertainty is the only constant, managed futures ETFs like DBMF are not just tactical tools—they’re essential components of a modern portfolio’s survival kit.

As markets grow more unpredictable, the lesson is clear: diversification isn’t just about asset classes—it’s about how they move. DBMF, for all its flaws, delivers the latter.