managed futures

How To Make Money In A Bear Market

portfolio strategy May 10, 2022

Right now many investors are asking themselves, "Are my investments safe and where should I be investing?"

Given we invest over the medium to long term, we stand by all of our historical & upcoming research, picks, & portfolios.

But in the short term, as we've mentioned one thousand times, volatility is here to stay.

So with rising inflation, one solution that many investors are turning toward is inflation-linked assets such as oil, gold, wheat & other commodities.

But commodities aren’t a perfect solution. They can be volatile. Their prices can stay in holding patterns even as inflation runs rampant, prompting you to pull your hair out, despairing: “Why isn’t anything making any money yet?”

In times like these, it can be smart to start thinking about diversification of strategies rather than stocks.

Enter “managed futures.” This strategy is “market-neutral,” which means it can thrive even in bear markets. And it just may be the outlet for investors who want to hedge against this downturn.

And, our favorite managed futures ETF is DBMF.

Check out its recent performance vs major indexes:

For the uninitiated, here’s how it works, how to invest in it, and our timing getting in & out of the ETF👇 


What are Managed Futures?

Managed Futures are portfolios of futures contracts. Professional and registered trading advisors go through a gamut of regulatory requirements to manage these portfolios, but the gist of it is simple:

Managed Futures are a bit like mutual funds for futures contracts.

Dizzy yet? Yeah, we’ve still got some ‘splaining to do to make sense of managed futures.

So let’s back up and tackle the first concept: trading futures.


Futures Contracts: Turning Wheat into “Stocks”

While futures contracts sound complicated, the reality is quite straightforward.

A futures contract is an agreement between two parties. That agreement decides on a price today that the buyer will pay at a later time.

Remember in Back to the Future, when Doc Brown always chastised Marty for not thinking fourth-dimensionally? It’s kind of like that. Take an ordinary contract and start thinking in terms of time travel.

Let’s take an example. Imagine you have an agreement to buy 100 bushels of wheat on December 16th, 2022 for $500 a bushel.

No matter what the price of wheat is on that day, you have to pay $500 per bushel and take on the full 100 bushels.

Kinda scary, right? After all, no one has a crystal ball. If your judgment is off, you could pay $500 per bushel on a commodity only worth $450.

So what kind of investor-slash-wizard has the confidence to make that kind of bet?

Well, all investments are, to some degree or another, bets on the future. If you buy a stock today, you hope it will go up in the future. If you short a stock, you hope it will go down.

Futures contracts turn commodities like wheat into investable assets. And when you own a futures contract, you can sell that contract on an exchange to another investor. It’s similar to trading stocks.


Putting the “Managed” in “Managed Futures”

If trading futures on commodities turns them into stock-like investments, then “managed futures” turn those stock-like investments into fund-like investments.

To be clear, managed futures are not mutual funds.

But they do create an alternative asset class for investors who are concerned about high inflation with a slowing economy. Those same investors can outsource the management of these future portfolios to the experts.

And how do those experts approach trading futures? There are typically four variables you need to know:

  • Momentum

  • Asset class

  • Risk

  • Time horizon

Let’s zoom in on each and find out why they're so important.

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