In a recent episode of "Behind the Ticker," Andrew Beer, an established figure in the hedge fund and ETF industries, shares his experiences and insights with host Brad. Beer discusses his journey through the hedge fund world, where he initially worked with prominent managers and later co-founded hedge funds, ultimately focusing on making hedge fund strategies more accessible and less costly through ETFs. This led to the development of hedge fund replication strategies, helping wealth managers transition from traditional 60-40 portfolios to more diversified approaches, especially amidst changing market conditions.Throughout the podcast, Beer delves into the challenges and strategies of asset allocation in the current financial landscape, characterized by higher interest rates and increased market volatility. He argues that while the traditional 60-40 portfolio excelled during periods of low interest rates, the changing economic environment necessitates a more dynamic approach to asset management. Beer emphasizes the importance of diversification and introduces the concept of "crisis alpha," where managed future strategies provide significant value during market downturns by not correlating directly with traditional stocks and bonds.Beer further explains the technical aspects of his firm's managed futures ETF, DBMF, emphasizing its systematic, quantitative approach to replicating hedge fund strategies affordably. He outlines how the ETF is structured to maximize efficiency and transparency, making it an attractive option for investors seeking hedge fund-like returns without the associated costs. The conversation concludes with Beer advocating for managed futures as a necessary component of modern portfolios, providing crucial diversification that can enhance long-term investment outcomes.
Deeper Dive: Insights from the Full Conversation
Beyond the headline strategy, the full conversation between Brad and Andrew Beer covered several additional themes worth highlighting for advisors and investors.
On Process and Philosophy
Today we have on Andrew Brear from DBI, and we are talking about their managed futures ETF, DBMF, which seeps to replicate the managed futures hedge fund performance, wrapped inside of an ETF, and without the fees and the carry. We talk about managed futures as a whole, how they could be viewed and should be used inside of a diversified model portfolio, and Andrew does a great job talking about investor and advisor expectations for holding these types of funds.
I'm Brad Roth, Chief Investment Officer of Thor Financial Technologies, and portfolio manager of THLV, the Thor Low Volatility ETF. Behind the Ticker, uncovers the inner workings of the ETF industry. We will interview portfolio managers and ETF service providers to dive deep into their work lives and their businesses. We will learn the inner workings of their strategies and what drives them as they continue to grow their company. Many of these individuals are entrepreneurs, and will have unique and compelling insights to share as much goes on behind the Ticker.
Market Context and Positioning
So it is, it's 100% systematic. And, and what we do when we talk about the diversification benefits of the space, it's, it's a little bit like saying, like, if you say the S&P 500, right, a consists of 500 stocks, you can look at each of the 500 stocks. But you're always looking at the category. The category here is an index called the Soxgen CTA Hedge Fund index. And, and that goes back to 2000 with good data. And it's basically the average returns after all fees and expenses of the 20 largest guys each year.
So, in statistical jargon, you would say it will raise the sharp ratio of a portfolio. Now, the, when you look at, so for instance, if you look at since 2000, and you said, what I rather have had a 40% allocation to bonds or managed futures, the kind of stunning conclusions you'd rather have an allocation of managed futures over that period of time, you would have been unhappy with it for 20 years and do literally happy with it for 40 years.
But it's just, it's just one more leg of the asset allocation stool. And that's where I think they'll also sizing of the strategy ends up being important because you're going to have, you know, I mean, as the world evolves, maybe you'll have some Bitcoin exposure. You'll have some direct gold exposure, direct commodity exposure. You may have all these different different things that you can add into that portfolio. And this should just be one of, one of those, one element with that.
Notable Insights
"And that's why, that's why most of my conversations are with people, where I like the conversations like to have with people who build model portfolios, you know, because because I want to be people's allocation today, but in 10 years."
"And that's why I think the, the messaging, as you say on the front end, is literally just has to be explicit."
Key Takeaways
- The conversation explores important themes in fixed income relevant to today's advisor landscape.
- The conversation explores important themes in quantitative investing relevant to today's advisor landscape.
- The conversation explores important themes in income investing relevant to today's advisor landscape.
What This Means for Advisors
For financial advisors evaluating options for client portfolios, this conversation with Andrew Beer highlights important considerations around fixed income. Understanding the strategy behind each fund—not just the ticker—helps advisors make more informed allocation decisions and better communicate the rationale to clients.
The themes of fixed income and quantitative investing discussed in this episode are particularly relevant in the current market environment, where advisors are increasingly looking for differentiated solutions that go beyond traditional benchmarks.
Listen to the Full Episode
This article is based on an episode of Behind the Ticker, hosted by Brad Roth, Founder and CIO of THOR Financial Technologies. For the full conversation with Andrew Beer, including additional nuances and details, listen on Spotify, Apple Podcasts, or watch on YouTube.