Andrew Beer, co-founder and managing member of DBi, told CNBC’s “ETF Edge” this week that managed futures, a strategy historically reserved for hedge funds, could offer a more effective counterbalance to equities than traditional fixed income.

“[Bonds have] been dead money for the entire decade,” Beer said. “I fell in love with a strategy called managed futures because tactical is really good. Be nimble when other people’s [portfolios] aren’t.”

The Case for Low Correlation

“You want something that has low correlation to both stocks and bonds, and something that will do well in crises,” he said. “It’s very, very hard to find a better hedge fund strategy than managed futures to accomplish that.” He helps manage the iMGP DBi Managed Futures Strategy ETF, ticker DBMF, which replicates the performance of leading managed futures hedge funds inside a low-cost, liquid ETF, according to the firm’s website. As of Thursday’s close, the fund is up almost 19% so far this year, according to FactSet data.

“There’s an existential crisis right now in strategic asset allocation and the model portfolio world,” he said of the conventional 60/40 portfolio framework. “I love my bonds … [but] I’m not making it a 40% allocation for something that is not adding to the rest of my portfolio.”

Diversification, Not Replacement

Not everyone is ready to sideline bonds entirely. Nate Geraci, president of NovaDius Wealth Management and co-founder of ETF Institute, pushed back on the idea that alternatives should displace fixed income outright. “I call fixed income the most challenging area in investing right now,” Geraci said. “[Alternatives] fit in the sleeve of a well-diversified portfolio that includes stocks and bonds. But I don’t think you just give up on the bond side of the equation.”

Geraci also cautioned that managed futures ETFs, while capable of outperforming during volatile markets, can also experience periods of underperformance. “You have to let that work out over the long-term,” he said. “To me it’s just a balance. It’s all about diversification.”

Source: CNBC report.