ETF Edge - A hedge fund tactic without the hedge fund cost 3/23/26

Episode Date: March 23, 2026

As investors look to hedge against whipsaw volatility, managed futures funds may offer a welcome cushion… but you must understand their complexities first.   Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchanged, traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm your host, Dominic Chu.

Managed future strategies have long been used by hedge funds during times of market volatility and even stability. Now, it's a growing category of more cost-efficient ETFs as well. Here's our conversation with Andrew Beer, founder and managing partner over at Dynamic Data Investments, and Nate Jeracy, President at Nova Diaz Wealth Management. I'm going to start Andrew with a question for you, because when it comes to managed futures, CTA, commodity trading advisors, there are a lot of things that some investors know more about than others. So my initial question to you, Andrew, can you take us through what managed futures are and how commodity trading advisors or CTAs utilize these types of strategies to help pick investments?

Sure. Well, first of all, thank you very much for having me on. So it's interesting. So the CTAs or managed futures is a complicated investment strategy that's been around for 50 years. people use computer models, they try to figure out the next big trades. Is inflation coming back? Are we going to a bare market? These kind of big macro themes. I don't think that matters to most investors. I think what matters to most investors is I've got 5% of my portfolio in this. Am I happy that I have 5% in this investment?

And so on that side, it tends to have, I think, as an allocator, more diversification bang for the buck than almost any other thing you can put in your portfolio. and when we got into the space about 10 years ago, it was in part because of those benefits, but also the fact that we could take it and package it in an ETF, which is very, very rare for a valuable hedge fund strategy. Now, one of the other things as well about that, Andrew, is trying to figure out what is the suitability aspect for certain types of investors.

Now, managed futures accounts and commodity trading advisors can traffic in all different kinds of instruments, even some of the plain vanilla traditional ones, but then into derivatives, more exotic type products as well. What exactly then do managed futures clients or potential clients who are trying to put this into an ETF strategy and utilize that format? What do they have to know about the types of benefits and costs and risks associated with managed futures type investing? So the strategy itself is interesting in that when you describe trade. trading futures contracts, going longer short gold, going longer short crude oil, you know, betting on interest rates going up or down.

It sounds very, very complicated and people assume that it's quite risky. But actually if you look at the broad returns of the strategy over the past 25 years, it's actually had not a terribly significant maximum drawdown. They will lose money. They'll be wrong-footed in markets. I mean, March is interesting and that essentially the war rug pulled a lot of the smart money investors out there. So you're going to experience that. But I think at the end of the day, what's so valuable about the ETF package is it doesn't really matter. It doesn't really matter

what the underlying is. If you are investing in an ETF that has 2x leveraged exposure to Tesla by a swap, what you care about is a return stream and whether this is going to benefit you in your portfolio and whether you're going to make money. And I think I'm actually relatively unusual in the ETF world in that my focus was how do I make money for investors, right? How do I deliver the best pre-tax and increasingly after-tax return for investors? The ETF vehicle is just the future. If that's the vehicle that allows my sister to access it. And so, you know, I think there's always this tension between what the underlying strategy

is, and then, as I made the point, is really, does it help you? Because I think we all have the same goal is that we want our investors to be able to grow their assets but sleep at night. Okay. Nate, with all of that in mind, you follow some of the trends in terms of ETF flows, some of the activity around these types of instruments, and the general sentiment around the types of products being brought to market. What do you think, in your opinion, is this kind of managed futures strategy in ETF format going to play out in the ETF industry? We already know that the fund that Andrew manages right now is north of three some billion dollars, so there is certainly appetite for it. But what exactly has been the kind of growth trajectory for some of these alternative type strategies in ETF format?

Well, first, I think about the bigger picture story, which Andrew was alluding to, and that I think investors and advisors are seeking diversification right now, because we do still have elevated U.S. equity valuations. The major U.S. stock market indices are still very top-heavy. I think there are some growing concerns around the AI trade. We touched on worries about inflation and the potential for rising interest rates. And then, of course, we now have this concerning geopolitical backdrop with Iran. And so investors and advisors are looking for ways to diversify their portfolios

and something like managed futures ETFs, which do offer lower correlations to stock and bond holdings, they fit the bill. And I always think about going back to 2022, when you had the S&P 500 down around 18%, aggregate bonds were down 13%. If you looked at managed futures in an ETF like DBMF, that was up nearly 22%.

So that's a meaningful outperformance in an environment where both stocks and bonds were under a lot of pressure. And so I think all of this could bode well for the category overall. If you look at managed futures, ETFs, it's around a $6.5 billion category, which is relatively small when you look at the entire ETF space. But over the past year or so, we've seen players like iShares, Fidelity, Invesco, all enter the market. I think that's a sign there could be real investor demand moving forward. I look at DBMF. That's taken in over a billion dollars in inflows just this year.

So again, I think the investor interest is there, particularly given the backdrop of the market environment overall. Nate, can I just follow up really quickly? From your perspective, do you feel the general marketplace among investment advisors and maybe even more sophisticated retail investors? Do you think that they're over, under, or right-size indexed to some of these types of strategies like managed futures? My sense overall is that they're under exposed to these types of products. But you were hitting on a very important topic earlier with Andrew, which is just education

around these products. And I do think these are clearly more complex than other types of ETFs on the market. I think investors, advisors need to have a firm understanding of how these work. And I would also bring in the behavioral component to these strategies because investors have to be able to stick with managed futures. through inevitable periods of underperformance. These aren't always going to work. And I think that's okay because they can work really well

when you actually need that. But investors have to understand that and let these strategies work over full market cycle. So it's both understanding the product itself, but also having that behavioral component, being able to stick with the strategies over the longer term. All right. Speaking of, Andrew, this is a very timely conversation right now

because we are seeing bouts, and I mean bouts of volatility with regard to many different asset classes, even before the war in Iran started. We saw parabolic moves and certain precious metals trades going into it. We've now seen some of those precious metals trades unwind markedly in a time when geopolitical risk was supposed to be driving their kind of adoption. We've seen massive moves in crude oil and natural gas because of things tied to the Iran war. And we've seen, to Nate's point, the AI trade and some of the kind of cyclicality around tech spending enter the picture as well. Many of these types of catalysts are the reasons why some people turn towards managed future strategies and trend following strategies. What exactly have you seen?

And what exactly does it tell you about the marketplace and the ability for managers like you to glean into the future to find where the next trends will be? So I think when you're thinking about these trends, right, it's important to differentiate between, I mean, look at today, right? I mean, I woke up this morning, you know, the world is going to hell. Like a few hours later, everything's bouncing back. No one has a playbook for that, right? I mean, that is too chaotic and too unpredictable. So even you as a hedge fund manager running managed future strategies do not have a real plan for something like that happening? Absolutely not.

And I think, but where it really matters, right, if you think about the typical allocator, they have a model portfolio that is designed to diversify across stocks and bonds and move slowly. You revisit your portfolio only periodically. And that works most of the time. The problem is sometimes the world changes a lot. You know, there was no inflation in 2020, and there was a lot of inflation two or three years later. most allocators, most advisors are not equipped to manage those what we call regime shifts. So when you look at something like the oil markets right now, oil going up or down 10%,

is the oil market's telling you that oil in a year could be 60 or 150. We don't know. The dollar could continue to recover. The dollar could collapse. Interest rates, long-dated interest rates could go back up, particularly if we have inflation or stagnation. So we're in a period of tremendous uncertainty. And what I've been telling people, as we talked about before, is now is the time to take a step back. Because the market is telling you that the cracks in the ice are spreading, and it's time to think about diversification and risk management.

And that goes around finding strategies that can thrive during periods of chaos, which is what this strategy has proven to do over the past 50 years. And then secondly, think about liquidity in your portfolio. You may need to grab liquidity from assets, and how do you manage that. And so, you know, the kinds of themes that we've been seeing are, you know, the rise of gold. But that's been going on for 18 months, except for the past few weeks. We saw crude oil come back and a long position just earlier this year. A major rotation out of from U.S. stocks to international stocks and emerging market stocks, which you go on for 10 years. So, you know, I think the key to diversification is you never know which strategy is going to do well.

And so you really want to do spread. But you reduce your risk by spreading your bets and doing so in an intelligent manner. What exactly are you seeing Andrew right now with regard to the types of movements between assets away from some into others that tells you or your models, right? The inputs that go into your models. How does it identify right now? What exactly could be either the next trend higher or lower or a change in an existence? how much data is required before you as a manager and or your models tell you that it's time to be in something versus something else or get out of something you're already in and move into another asset class.

So our strategy is interesting and that we're actually leveraging off of the work that the largest hedge funds in the world doing this. So we try to beat hedge funds at their own game, not by being smarter, but being more efficient. And we basically set out 10 years ago, we said, look, we can do what these hedge funds, we can pick up what these hedge funds are doing, but say 400 basis points a year in costs. That is taking a great strategy and making it a lot better. The next evolution, which we can talk about, is then how do you also make it more tax-efficient? And that's where a lot of the innovation in the ETF world is going on right now. But in general, where these strategies thrive is when you have changes that are occurring over

three, six, nine, 12 months, as opposed to what's happening. between Monday and Thursday. And so I think in the context of a portfolio construction, that ends up being exceptionally valuable because most allocators, Nate mentioned that, you know, fidelity is now including these strategies in their strategic models. And Invesco launched a fund, you know, citing their stats.

BlackRock has a fund doing it. There's, you know, I started about three or four years ago saying in this brave new world of asset allocation, you need this. You need this. And whether it's a 3% allocation or 5% of an allocation, it's just going to be sitting there alongside infrastructure or hard assets or whatever else you have in your portfolio, it's happening, but it takes time.

All right. Nate, one of the big questions out there for a lot of folks relates to just how maybe appropriate and or in terms of risk profile, but also in terms of tax efficiency some of these instruments are. The ETF wrapper does help in many of those regards. But what exactly then do clients have to be kind of where, of with regard to the tax nature, the active versus passive nature for some of these instruments. You know, commodity trading advisor and managed future strategies are almost by definition an active strategy, right? Because people are looking at making changes along the way based upon

and reacting to different types of market catalysts. But how exactly then should some investors treat the risk profile and the tax profile for some of these types of instruments? Well, I think a lot of these strategies, while they are technically, active, they're very quantitative in the way that they're being implemented. And so I do think that helps just in terms of the turnover of the fund and the types of holdings that it's trafficking in. I think that what you want to look at, obviously the total expense ratio on an ETF, I think you do want to look at what that turnover looks like, is that being optimized in how the manager is implementing the future strategy. Taxation DOM is always key, and there are different tax structures out

Is this investing directly in futures contracts? Is it holding swaps? You have to look under the hood because that is going to impact the taxation. So I think it's all of those things that are going to impact whether or not you select one managed futures ETF over the other. Now, Andrew, one of the things that we kind of look more closely at is just how much some of these dynamics in the current market could affect what your investment strategies are or the the investments that you invest in, how they could be impacted down the line.

You mentioned some of the time horizons for the trades that you are looking at to kind of play out. This is not an intraday thing. It's not a one-week thing. It's not even a two or three-week thing. This could be a multi-month process. Have you seen anything in this current market that suggests to you that we could be due for some kind of a change in trend? Or, to your point, is this kind of crystal ball phenomenon, one that you can't bank as much on

because these are not really what you would think of as normal markets. during the course of your now multi-decade career running these types of products. So I think when you have a macro event, a singular macro event, like we had with Liberation Day last year, and you have right now, it's going to take time to see, right? I mean, if this, if the war in the Middle East is a quagmire that goes on for years, that has staggering implications for everything from economic growth to supply chains to, I mean, that is, and again, as I mentioned, Nobody has a playbook for that right now.

What we've seen across the space is de-risking, is that when you are long gold and gold is going up 30% in the first several weeks of the year, and then you all of a sudden a few weeks later have people maybe possibly even, you know, Middle Eastern nations doing forced liquidations of their portfolios. You know, when you have Bitcoin dropping in half and then recovering, silver goat doubles and drops in half,

crude oil is dormant and then doubles overnight. Nate, I mean, these moves are so extreme and are so short-term in nature that it's very, very difficult as an investor to calibrate yourself in the context of that. Now, when it comes to that, Nate, there is a maybe question that gets begged based upon that kind of response in that you alluded to, you have to kind of stay in some of these types of investments a little bit more medium to longer term in order to realize all the benefits to them. So if you are looking at this kind of investment in your mind, Nate, you allocate right to this and you let it go. Or do you have to be a little bit more active if you're an investment advisor or a retail investor at monitoring just when you kind of see your stops triggered or your limits fulfilled? Do you have to actively manage risk? Or do you treat this more as a, hey, the construct that I'm investing in is inherent to managing around. the risk in the underlying portfolio.

Yeah, in my opinion, this is absolutely something that is a longer-term allocation, and I almost view it as portfolio insurance. You want that insurance when something goes bad in the market, and maybe that's stocks and bonds going down together. But I think about some of the asset classes that have been brought up in our discussion here today, oil, gold, we can get into international equities. You know, a lot of investors aren't set up to tactically trade in and out, of those types of asset classes.

And so if you can package all of this up into a low cost, tax efficient, ETF wrapper, something that is a one-stop shop that has a lower correlation to your broader stock in bond holdings, I think that can be beneficial to investors. But it's certainly something that you have to stick with over the long term.

I don't think manage futures ETS or something investors should be darting in the doubt of. All right. And then I want to put a point in this conversation and I'll kind of close things out with you, Andrew, if I can. This is a, it's been a volatile year. There's no doubt about it.

It was already being volatile going into this year. The war in the Middle East has made it even more so. For the balance of the year, Andrew, what exactly would you be key to watch for? What exactly would be front of mind for you as you start to look as a fund manager into how the markets are shaping and what the dynamic, I guess, they create going to the back half of this year, which is also, by the way, a midterm election year to throw another catalyst in the mix. So I think I would pay attention to market structure.

And again, when I talk about these, it's not normal for big markets to move as much as they are right now. And the remarkable thing about the past 12 or 18 months has been the number of stresses that we've had on the system that have not resulted in things spiraling out of control. And so what I've often said about last year is the best thing to do in 2025 was just turn off your computer at the beginning of the year and come back at the end of the year and you've made money your stocks and your bonds and everything

else have basically gone up. It won't continue like that. We will go through a more difficult period. And so, you know, I would look for things like private credit. You know, does it look like it's spreading? Where are the, is that impacting insurance company portfolios? You know, how do we think about, you know, do you see, you know, do you see? like oil went negative at one point several years ago. Do you see these kind of crazy moves? Interest rates were negative at one point. Those are evidence that the market is something is deeply wrong in the market's ability

to forecast the state of the world. And look, I think the only thing we can all do is investors is this is the moment to plan and to prepare for the worst. You hope for the best, right? We hope that everything is fine. But even things, something like AI. I mean, you have more geopolitical risks stacked on top of each other today, more economic risk stacked on than I remember at any time in my career, which is shockingly long at this point. And so, again, I would just encourage anyone listening to this cult, this is the moment to take a step back and think, how would I do in a 2008?

What if 2020 Hugh happens again? You know, how do I work my way through that? because ultimately these financial assets are, they're an investment, but they're also what you need to survive, to live on, to retire. And so it's the very real human side of it that I hope people will focus on. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Nate Geraci, president at Nova Diaz Wealth, continues with us now.

You know, Nate, it was an interesting conversation in one that I wish we had more time. to go through because it is a complex one. I'd like to pick up a little bit to start where we ended the last conversation alongside Andrew Beer in that these complex strategies are now gradually and even maybe more so working their way into the overall story around ETF. So in your mind our managed futures something that we should all be looking more for in terms of ETF offerings in the coming months and years. I think certainly the industry is going to be launching additional managed futures products, along with just general hedge fund strategies.

It's interesting because what I think about all of the new launches over the past several years, the complexity of the products coming to markets without question has increased substantially. And the way that I view this, Dom, is that there are certain products that offer real value to investors and especially longer-term allocators, but there's also a lot of products that I think, quite frankly, are very dangerous in portfolios. And it comes back to something that I believe is critical

for both the industry to take the lead on, but also investors and advisors to take responsibility on as well. And that's education. And it sounds cliche, but when you have product complexity increasing at the rate that we have seen it, you have to understand how these products work and how they fit into the context of a broader portfolio.

And again, I think that the onus is ultimately, on investors and advisors, but I think the ETF industry as a whole needs to make sure they're doing their part as well to help educate. Now, in this current market environment, as we sit here for this podcast, the war in the Middle East is still going on. There are still a lot of risk parameters that are being tested, right, by not just individual investors, but by investment advisors as well. We have not seen a massive index level pullback, the likes of which we saw during the so-called Liberation Day tariff announcements last April and the resulting 15% drop we saw in just three days along some of those tariffs. That doesn't mean, though, that under the surface,

there hasn't been a lot of volatility in certain types of individual asset classes or individual stocks. I wonder from your standpoint, has this recent market volatility in your mind changed the paradigm or construct for certain investors out there in the way that they should view risk? I think it has, and we can see that in the flow data. If you look at where investors are putting money, there's clearly been rising interest in areas such as commodity and natural resource ETFs. We've been talking for a while about the interest in international equities, which even though those have pulled back recently, if we look back to the beginning of last year, there's been substantial outperformance. We can talk about managed futures ETFs. The point, Dom, is that

investors, I think, are seeing that volatility. They're seeing where valuations are at. There's concerns over inflation and interest rates, what the Fed may do, and there's this feeling that they need to diversify. And that's why they're looking to these. other areas. We're looking to alternative asset classes. They're looking internationally. I think we're going to continue to see that. The active versus passive kind of, it's not really a debate or argument. It's just a state of play. There has been a lot more focus these days on having a manager or a sub-advisor actively engage in the kind of selection process, the deselection process, the overall movements in portfolios, and putting them in an ETF.

wrapper. This particular move in the markets that we've seen seems to be custom made for active managers. Do you feel as though that active management is being put to the test in this current environment? I do because if you're a believer in active management, this is when it should shine. And we've all seen the longer term data, which shows that it's very difficult for active managers to consistently outperform over the longer term. Now, I'll say, you know, particularly in the ETF space, we've seen fees on active strategies come down, and that's important because ultimately active managers have to clear that fee hurdle in order to generate outperformance.

But at the end of the day, performance is king. I talk about this all the time, and we can say this is the right environment for active management. We can look at some short-term performance. At the end of the day, managers have to outperform over the longer term, and the data shows it's very difficult to do. That doesn't mean that they can't do it. But I think that's important to keep in mind. So I do think investors are going to be looking more towards active.

We've seen that over the past several years. If they don't feel that they're in a good position to make these calls in the market, certainly look into active can help. But I do think on the fixed income side in particular, the data would support that an active manager can perhaps offer more value. But investors have to look at that track record and make the determine. for themselves. Now, Nate, you and I were both at the Exchange Conference in Las Vegas just this past week. That conversation came up quite a bit, at least for me, and I'm sure it has for you, about active management and the growth in active ETFs. That aside, I wonder if it might

be interesting to get your thoughts in now the wake of the Exchange Conference in Las Vegas. What exactly some of your key takeaways were in your conversations during the event and sitting and listening to panels and discussions and meeting with some of your peers in the ETF business? What exactly was the thing or one or two things that maybe stood out the most to you at this industry conference of which ETF managers and participants participate more fully in each year? Well, I'll dovetail on the active ETF conversation because a really big topic of conference. conversation was the ETF share class structure. And last Friday, we saw Dimensional launch the first one. So they rolled out the dimensional U.S. Microcap ETF. So this is now real. And a lot of the discussion at exchange focused on whether fund companies are truly ready for this operationally. Dimensional clearly is, but there's a lot that goes into bringing ETF share classes to market,

from capital markets to distribution, obviously a fund board oversight. The point is you don't just roll out an ETF share class overnight. And the overall sentiment that I picked up is that there's still a lot of work to be done by asset managers here. Now, the other aspect of this is more from an investor and an advisor perspective. And similar to what we were just talking about, I think there's this question of how many active ETFs do we actually need on the market and how do investors and advisors best filter through that expanding universe. So I think that was clearly a topic of conversation. A couple other ones I'll mention, Dom, international equities. I mentioned earlier that we have seen a pullback recently, but they are still outperforming.

And I think that we're seeing investors be proactive at seeking international diversification. I think over the past 10 to 15 years, portfolios have become heavily overweighted U.S. There's a real home country bias, and that's starting to reverse now. We have seen that nearly 100 billion in inflows into a global XUS ETFs this year. If you look at the ETF leaderboard, while it's still dominated by U.S. stock ETFs, you're seeing ETFs like IEMG, the I Shards of Mergent Markets, ETF. You're seeing VXUS, which is the Vanguard Total International Stock ETF. Those are both in the top 10.

So I think there's clearly some momentum here. And then the last one I'll leave you with, crypto. There's a lot of discussion over Bitcoin and crypto and whether or not this is something investors and advisors should even think about including in their portfolio. particularly given the large drawdown we've seen since early October. It'll be fun to see for sure how next year's conference evolves in terms of those same conversations and whether they get revisited or evolved from the points that we've seen right now. Nate Geraci, thank you so much for joining us. We appreciate it. We'll see you soon.

Thank you. All right, that does it for the ETF Edge podcast. Thanks for listening. Join us again next week or just head over to etfedge.c.com. technology has transformed our world in amazing ways. Through it all, InvescoQQQEF has connected investors to the forefront of innovation. Access the future today with InvescoQQQ. Let's rethink possibility. There are risks when investing in ETFs, including possible loss of money.

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