This may be the year for active managers investing heavily in the energy space — and commodity trading advisors, known as CTAs, appear to be among the winners.
Dynamic Beta Investments’ Andrew Beer is in the space. He co-runs the iMGP DBi Managed Futures Strategy ETF, which is up 24% so far this year.
“CTA hedge funds try to capitalize on big shifts in the market. And right now we’re in the middle of a huge regime shift,” the firm’s managing member told CNBC’s “ETF Edge” last week. “We went from this low inflation world to one with high inflation.”
And that shift is working to attract Beer and others in his field to energy.
“As inflation comes back, [CTAs] are finding different ways to make money on it,” he said. “What we do in our ETF is basically try to understand what trades they’re doing and … copy it in a low-cost, efficient way in an ETF to bring access to a broader base.”
The Energy Select Sector SPDR Fund, which tracks the S&P 500 energy sector, is up almost 4% this month and 68% this year. And just last Friday, Chevron and Marathon Petroleum shares hit all-time highs.
But CTAs invest in a lot more than just commodities.
“The modern term is managed futures. And it’s because they invest in futures contracts,” said Beer. “In regulatory land, futures contracts are often treated as commodities, but we call them managed futures.”
Beer’s strategy uses long and short futures contracts in an attempt to mimic returns.
“If they’re betting on crude oil going up, no one goes out and buys barrels of crude oil and throws it into their garage. You buy a futures contract on it,” Beer noted. “When we see that the hedge funds are doing that, then we simply do the same thing. We ourselves buy a futures contract.”
West Texas Intermediate crude, the U.S. benchmark, is up 18% so far this year.
