Masters in Business

At The Money: Diversifying with Managed Futures ETFs

February 26, 2026

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  • Managed futures are highlighted in the "Masters in Business" episode "At The Money: Diversifying with Managed Futures ETFs" as a rare asset class that genuinely diversifies during periods when correlations between traditional assets like stocks and bonds spike to one. 
  • Andrew Beer of Dynamic Beta Investments (DBI) focuses on replicating hedge fund strategies, particularly managed futures, through low-cost, liquid vehicles like ETFs, aiming to outperform expensive private versions. 
  • Diversification, like that offered by managed futures, should be viewed as protection against bad luck (unforeseen economic shocks or policy mistakes) rather than a strategy expected to generate high standalone returns, suggesting a small allocation (Andrew suggests 3%). 

Segments

Diversification Failure of 60/40
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(00:02:32)
  • Key Takeaway: The 2022 market environment demonstrated that traditional uncorrelated assets, including bonds, moved together, invalidating the basic 60/40 portfolio playbook.
  • Summary: In 2022, stocks, bonds, TIPS, and commodities all declined simultaneously, showing that supposedly uncorrelated assets can move in lockstep during stress. Bonds, historically a strong diversifier, performed poorly, earning less than cash over the past decade when inflation exceeded 2%. This trend tears up the standard 60/40 model, necessitating new diversification sources to protect equity risk.
Critique of Liquid Alts
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(00:05:46)
  • Key Takeaway: The majority of liquid alternative products fail as diversifiers, often exhibiting high correlations (around 0.8) to equities while delivering minimal returns over long periods.
  • Summary: Andrew Beer is a strong critic of the liquid alternative industry, noting that many products fail to diversify effectively. On average, these supposed diversifiers have shown correlations near 0.8 to equities. Over 15 years, they have only returned 2% to 3% annually compared to 14% or 15% for equities, indicating they often destroy value net of fees.
Managed Futures Diversification Benefits
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(00:07:01)
  • Key Takeaway: Managed futures strategy offers the most diversification bang for the buck because it has no long-term correlation to stocks and bonds and performs best during difficult market environments.
  • Summary: Managed futures is identified as the strategy providing the best diversification benefit, tending to perform well when stocks and bonds struggle. Unlike some high-Sharpe ratio hedge funds, managed futures is compelling because its returns are not tied to equity or bond performance. The strategy’s maximum drawdown over 25 years is only 16%, significantly lower than equity drawdowns of 40% or 50%.
Low Blow-Up Risk in Futures
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(00:08:40)
  • Key Takeaway: Managed futures strategies have very low blow-up risk because they trade in deep, liquid futures contracts and actively scale out of positions during drawdowns.
  • Summary: Blow-ups typically result from borrowing money that must be returned unexpectedly or from fraud, neither of which characterizes managed futures. Futures contracts are among the deepest and most liquid instruments available for trading. Managers actively reduce risk by scaling out of positions, preventing the ‘white-knuckle grip’ seen in other strategies.
Hedge Fund Replication Strategy
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(00:13:04)
  • Key Takeaway: DBI’s replication strategy focuses on synthesizing the big themes and conviction trades of hedge funds rather than imitating specific stock holdings.
  • Summary: DBI only pursues strategies where they are highly confident they can replicate hedge fund performance cheaply and in a liquid format. Replication involves identifying major themes, such as shifts in equity exposure between US and non-US markets, rather than tracking individual stock positions like NVIDIA. The goal is to capture the performance driver from the most important, large-scale trades.
Framing Diversifiers for Clients
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(00:19:08)
  • Key Takeaway: Advisors should frame diversifiers like managed futures as a boring, attractively priced, incremental addition to robustness, not as star performers.
  • Summary: Pitching diversifiers based on recent star performance leads clients to expect constant scoring and impatience when disasters don’t occur. The correct framing is to present the allocation as an incremental addition that fills a portfolio gap, similar to adding high-yield bonds or non-US equities years ago. Because the product is priced attractively, clients should not expect to get rich while waiting for the insurance event.