At The Money: Diversifying with Managed Futures ETFs - Masters in Business Recap

Podcast: Masters in Business

Published: 2026-02-26

Duration: 21 min

Summary

In this episode, Andrew Beer discusses the growing correlation between stocks and bonds and highlights managed futures as a viable diversifier in modern investment portfolios. He critiques traditional liquid alternative products, arguing for more effective strategies that can withstand market stress.

What Happened

The episode opens with Andrew Beer, a hedge fund veteran and founder of Dynamic Beta Investments, discussing how the correlation between stocks and bonds has increased in recent years, particularly during periods of inflation. He emphasizes that the traditional 60-40 model portfolio is being challenged as bonds have not performed as well as expected, often earning less than cash. This has led investors to seek new diversifiers that can protect them from equity risk in volatile market environments.

Beer points out that while many liquid alternative products are marketed as diversifiers, they often fall short, delivering minimal returns and maintaining high correlations with equities. He expresses critical views on the industry, stating that “95% of things that people will pitch you are supposed to work just don't and don't add value.” Instead, Beer argues for focusing on established strategies that have demonstrated durability over time, particularly managed futures, which he describes as having a low correlation to stocks and bonds and performing well in difficult market conditions.

As the conversation progresses, Beer reassures listeners about the perceived risks associated with managed futures, explaining that the strategy is built on deep, liquid contracts that minimize blow-up risks. He outlines how these strategies can work effectively within accessible investment vehicles like ETFs, providing a compelling alternative to traditional hedge funds. By advocating for a shift in how investors think about diversification, Beer aims to equip them with the tools to better navigate the complexities of today’s financial landscape.

Key Insights

Key Questions Answered

Why are stocks and bonds more correlated now?

Andrew Beer explains that historically, bonds provided excellent risk-adjusted returns and often moved inversely to equities. However, this trend has changed in the current decade where, particularly with inflation rising above 2%, stocks and bonds have started to move together. This shift has led to a reevaluation of traditional investment strategies that rely on the 60-40 stock-bond allocation.

What are managed futures and why are they important?

Managed futures are strategies that typically involve trading futures contracts across various asset classes with the goal of achieving low correlation with traditional stocks and bonds. Beer highlights these strategies as having a unique capability to protect investors during challenging market environments. Managed futures have shown to perform better when traditional assets falter, making them a compelling choice for diversifiers.

What are the drawbacks of liquid alternative products?

Beer criticizes the liquid alternatives industry for producing products that often have high correlations to equities, thus failing to provide the intended diversification benefits. He points out that these products have historically delivered disappointing returns, averaging only 2% to 3% per year compared to the 14-15% returns of equities. This indicates a significant gap in the value these products bring to investors.

How does Andrew Beer suggest investors approach diversification?

Beer recommends that investors take a more thoughtful and strategic approach to diversification, focusing on durable strategies that have proven effective over time. He emphasizes the importance of understanding drawdowns, volatility, and other metrics when evaluating different diversifiers. By aligning investment choices with strategies like managed futures, investors can better protect their portfolios against market downturns.

What is the risk of using managed futures as a strategy?

Beer reassures that the blow-up risk associated with managed futures is quite low. He explains that traditional blow-ups often occur due to excessive borrowing or fraud, which are not typical in managed futures strategies. Since futures contracts are among the most liquid instruments available, the risks are mitigated, allowing them to function effectively as diversifiers even in turbulent market conditions.