This episode was about going deep into managed futures and hedge fund replications but it went far beyond that as we got into the inner motives and decision process of investors, with Andrew Beer from DBi.
We covered:
* Replication vs. Selection: Why "copying" the big macro moves of the industry often beats picking individual winners.
* The marketing "theatre" of complexity: The sleek decks, rooms full of PhDs and big models are the pitch, but they don’t guarantee performance.
* The Alpha-Fee Gap: How stripping fees directly translates to investor returns.
* ETFs as the Great Equalizer: Why the sub-advised ETF model works institutional allocators and wealth managers alike.
* Portfolio Construction: The role of CTAs (officially Commodity Trading Advisory but Andrew prefers Contrarian Tactical Alpha) in the traditional 60/40 portfolio.
And a lot more…
Watch it on YouTube or listen on every podcast app.
A few selected quotes
Managed futures are still underrated
The track record is impeccable: the most important number in this image is probably the 0 correlation with the S&P 500. And DBi is a resounding success, with around $8bn in AuM. Yet the market share and mind share of these strategies still feel relatively small.
“The ratio between diversification benefit and love in this thing is astonishing. This is a much better diversifier than the vast majority of the hedge fund industry, and people keep throwing their money at things that statistically have not been worth it.”
The core value proposition of managed futures
"We would have zero correlation to both stocks and bonds over 20 plus years. And it's a strategy that structurally seems to do the best when the markets are at their worst, because that's when things really move outside of the range of expectations."
Simple. But that doesn’t mean advisors embrace it.
“People invest in what they like. The people I'm talking to — they went into a job to pick hedge funds. They like their jobs. They don't really want to hear somebody coming along and saying, 'I think you've been overpaying for the past 10 years."
The appeal of complexity (for a certain audience)
"A lot of their investors have historically liked the complexity of it. You're pitching to people who want to come into the office and hear people tell them about all the statistical nuances of what they're doing... It's interesting and it's fascinating and you're talking to people with PhDs.”
Replication beats Complexity
But is replication the right word?
“The way we came at the space was basically to say, we're not gonna try to do what these guys do with all the complexities and all the costs and everything else associated with it. We're really just gonna study what they do. That's what replication does. There are 20, 30 funds out there that each of with hundreds of underlying positions, and they're constantly changing it. We're gonna look over some, and we're going to try to figure out what are the big macro themes that they've picked up on and we're just going to mimic that. And, what's astonishing about it is that it's so efficient that since we started, we've outperformed virtually every large hedge fund that does this net of fee”
Is it simplification rather than replication? Or minimalistic replication?
We discussed extensively, how the narrative and the words that go without it are still being shaped in the managed futures space.
About Andrew Beer:Andrew D. Beer has over thirty years of experience in the hedge fund industry. He serves as the co-Managing Member at DBi, a pioneer in hedge fund replication, and is co-Portfolio Manager of the firm’s investment strategies.
https://www.linkedin.com/in/andrewdbeer/
https://dbi.co/
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About the Investology podcast:Investology is the investment management intelligence show. Where innovators, investors, authors and experts discuss the future of investment management beyond the hype.Listen on every podcast platform, or watch on YouTube.
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