WisdomTree Investments brought a brand new actively-managed ETF to market on Jan. 5, called the WisdomTree Managed Futures Strategy Fund (WDTI: 50.01 -0.56%). WDTI is the very first managed futures strategy to be brought to the marketplace in an ETF wrapper. WDTI is listed on the NYSE Arca and will employ a quantitative, rules-based strategy that is designed to provide returns that correspond to the performance of the Diversified Trends IndicatorTM, or DTI Index. The fund will have an expense ratio of 0.95%.
The goal of the fund is to achieve positive total returns in rising or falling markets that are uncorrelated to the broader equity and fixed-income markets. WDTI will achieve this by investing across a combination of U.S. treasury futures, currency futures, non-deliverable currency forwards, commodity futures, commodity swaps, U.S. government and money market securities.
WisdomTree President & COO Bruce Lavine commented: “WisdomTree is very excited to bring the first managed futures strategy ETF to the marketplace. Managed futures has been an increasingly important asset class as investors look for less correlated assets that can profit in many different market environments.”
WDTI is an actively-managed fund that will have the DTI Index as its benchmark, as it will strive to produce returns similar to the index. According to WisdomTree’s press release, the DTI Index is a long/short rules-based, managed futures strategy developed by Alpha Financial Technologies (AFT) and its founder, Victor Sperandeo. The DTI Index began live calculation in 2004 and incorporates a diversified group of 24 liquid components of exchange-traded commodity and financial futures contracts.
A quick look at AFT’s site reveals a few more details. The DTI is composed of unleveraged positions in U.S. exchange-traded futures contracts on 16 different tangible commodities, such as light crude oil and gold, as well as futures contracts on eight different financials, such as major currencies and U.S. Treasury bonds. The index has 50% exposure to commodity futures and another 50% to financial futures in order to benefit from the non-correlation amongst the components. Systematic rules are used to establish a long or short position in each component position. Since inception in 2004, the DTI Index has returned 47.64% as of Jan 5, 2011.
On the first day of trading, WDTI had an 18.75% allocation to energy futures, 11.50% to grain futures 34.47% allocation to currencies and a 14.50% exposure to U.S. 10-year and 30-year bonds. There were also smaller allocations to other commodity sectors. The fund is intended to provide potential to perform in inflationary and deflationary environments, as well as rising and falling markets. While that seems like a lot to promise, in the broader scheme of things, WDTI will target investors looking for a source of uncorrelated returns. iShares’ Diversified Alternatives Trust (NYSEARCA:ALT) is currently the only other actively-managed ETF that similarly focuses on providing a source of uncorrelated returns. ALT has seen a steady growth in its asset base, ending 2010 with $110 million in investor assets.
Disclosure: No positions in above-mentioned names.
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