In a strong example of one of the key hedge fund definers, ‘eating your own cooking’, Simplify Asset Management is set to launch a new ETF product that will be based on the USD1.9billion iM DBi Managed Futures Strategy ETF (DBMF).
The Simplify DBI CTA MF Index ETF will be a cheaper, index-based clone of the original ETF, with fees of 35 basis points, against the original’s 85 basis points, and will be Swap-based rather than trading futures directly.
DBi’s managing member, Andrew Beer, says: “Simplify tells me their vision is to bring the index revolution to a hedge fund strategy with undeniable diversification benefits.” He believes that the Swap route may even bring a further tax efficiency for investors.
The new product is planned for a January listing in the US.
Beer says he has spent the last 20 years thinking about how to make investing in hedge funds simpler, cheaper and better.
“Everyone is rushing to build more and more active ETFs and no one has found a way to deliver a simple low-cost beta solution to a hedge fund strategy,” Beer says. “Simplify is an innovator at the intersection of ETFs and sophisticated derivatives – it’s managed futures made easy.”
Beer says that the innovation will suit the allocators that he speaks with. “I have spent seven years talking to hundreds of allocators and every allocator has a different preference function. There are trillions of dollars or more in ultra-low cost ETF-based models where the overall expense ratio is less than 20 bps. An active ETF with a high double digit price point will never be in those models. It’s about understanding the heterogeneity of the investment base and building products that solve specific problems.
“A low TER index-based managed futures strategy can be the first hedge fund product that will make inroads into trillions of dollars of ETF model portfolios that desperately need proven diversifiers.”
DBMF seeks to mimic the SG CTA Index and has outperformed its benchmark by 29 percentage points since its inception. “That’s the primary source of data that we replicate in our strategies but we have also created an investable version using our replication methodology and that index is so efficient that it tends to deliver plus 300 basis points – 3 per cent per annum over the index return because trading and implementation are so much lower than hedge funds in the index,” Beer says.
DBMF has returned over 12 per cent so far this year, compared with a 2 per cent loss for the SG index, which tracks 20 Commodity Trading Advisors (CTAs).
Managed futures is one of the original hedge funds strategies, seeking to benefit from a pool of largely commodity-based futures and a strategy that claims to add diversification into a portfolio, while enjoying quite a volatile return set.
Beer to ETF Allocators: Managed Futures go from optional to essential
