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

Host: Barry Ritholtz
Guest: Andrew Beer, founder of Dynamic Beta Investments (DBI)
Date: February 26, 2026

Episode Overview

This episode centers on the quest for real portfolio diversification in a world where traditional assets, like stocks and bonds, have become increasingly correlated—especially during times of market stress. Barry Ritholtz speaks with Andrew Beer, a hedge fund veteran known for his work on hedge fund replication strategies delivered via low-cost, liquid vehicles such as ETFs and mutual funds. They explore why managed futures and well-designed liquid alternatives can fill gaps left by failed diversifiers, dispel misconceptions about blow-up risks, and share practical advice for advisors and investors seeking robust risk management in uncertain times.

Key Discussion Points & Insights

1. Why Traditional Diversification Fails Now

• Stocks and bonds have become more correlated in the 2020s, undermining the effectiveness of the classic 60/40 portfolio allocation.
  • “Bonds have earned less than cash over the past 10 years and now, and the correlations have been creeping up, that tears up the basic playbook of a 60/40 model portfolio...” — Andrew Beer [03:34]
• The need to look beyond conventional assets has become more urgent, especially for those with lower risk tolerance than Warren Buffett.
  • “Most investors don’t have that kind of risk tolerance and they need things that are going to help to protect them during, during difficult market environments.” — Andrew Beer [04:27]

2. The Problem with Most Liquid Alts

• Many marketed “diversifiers” have high correlation to equities and poor returns.
  • “On average have correlations of often around 0.8 to equities and they’ve delivered 2 to 3% per annum over a period of time when equities have gone up by 14 or 15% a year... 95% of things that people will pitch you [...] don’t add value.” — Andrew Beer [05:16]
• The asset management industry is incentivized to sell products rather than ensure effective diversification.

3. Managed Futures: A Powerful Diversifier

• Managed futures stand out for low correlation to both stocks and bonds, particularly in tough markets.
  • “The strategy having the most diversification bang for the buck is ... managed futures. It’s the core of what we do.” — Andrew Beer [06:46]
• Not a “high Sharpe ratio” strategy, but strong in downside protection and accessibility via ETFs.
  • “It’s not a high Sharpe ratio strategy... But what was compelling... is I can make it work and do better than the actual hedge funds, but in liquid accessible vehicles like ETFs.” — Andrew Beer [07:19]

4. Understanding Risk and Avoiding Blow-Ups

• Blow-up stories typically involve leverage, liquidity mismatches, or fraud—not the core structure of managed futures.
  • “The blow up risk is very, very low... the maximum drawdown is only 16% whereas in equities you’ve had a 40% and a 50% and several 20% plus drawdowns.” — Andrew Beer [08:27]
• Managed futures strategies dynamically adjust risk, trimming positions in response to changing market conditions.

5. Addressing “Fake Diversification”

• The industry’s “spaghetti cannon” approach—launching dozens of products, hoping one works—is deeply flawed.
  • “The odds are really stacked against the average [investor]... It’s extremely difficult to see through this marketing haze and fuzz.” — Andrew Beer [11:18]
• Most diversifiers are marketing successes but “investment catastrophes.”

6. Precision in Strategy Design

• DBI only pursues strategies with high confidence of success—“we only have two strategies because the other eight or ten that we’ve looked at don’t work.” — Andrew Beer [12:50]
• Hedge fund replication involves copying strategies, not positions:
  • Focus is on mirroring big asset allocation themes (e.g., shifting into international markets), not copying stock picks.
    • “Rather, what we’re trying to pick up on are their big themes. So are they migrating their equity exposure from US equities to non US equities?” — Andrew Beer [14:07]
  • “The thing you don’t want to do is... launch products because you hope they’re going to work.” — Andrew Beer [15:35]

7. Diversification as Insurance Against Bad Luck

• Diversification isn’t about solving for every known risk, but about preparing for the unknown—economic shocks, policy mistakes, geopolitical turmoil.
  • “Diversification is a protection against bad luck.” — Barry Ritholtz referencing Andrew Beer [15:48]
• Recent years have tested global markets, yet the standard playbook “worked wonderfully in a year like last year,” but Andrew sees “years of big change” ahead. [16:13-18:35]

8. The Behavioral Challenge: Selling Diversifiers

• Clients grow impatient when diversifiers “don’t do anything” during bull markets.
• Andrew stresses framing: Position diversifiers as long-term insurance, not star performers.
  • “We’re the boring way of getting exposure to it... part of your asset allocation.” — Andrew Beer [20:33]
  • Advisors should avoid overpromising and instead stress cost-effectiveness, patience, and the incremental value of robust diversification.

Notable Quotes & Memorable Moments

• On past market stress:
  "As we learned in 2022, sometimes all supposedly uncorrelated asset classes move together. Stocks went down. Bonds went down. TIPS went down. Commodities went down. Bitcoin went down. Very few things bucked the trend."
  — Barry Ritholtz [02:01]

• On replicating hedge funds:
  “We know we figure out their big trades, we figure out where their conviction is, but instead of paying them a lot of money... we can synthesize it and do it efficiently.”
  — Andrew Beer [13:10]

• On positioning with clients:
  “You don’t complain if your house doesn’t burn down… After a few years without a disaster, someone’s going to say, hey, these don’t work. I want to sell this.”
  — Barry Ritholtz [18:39]

• On framing alternatives:
  “If you frame it in terms of this is just simply incrementally, that fills a gap in terms of how we manage your money... Five years from now, seven years from now, 10 years from now... this is just one incremental addition to it.”
  — Andrew Beer [21:09]

• On allocation sizing:
  “Just keep in mind that you don’t want to back up the truck and own 20, 30% of it. It’s supposed to be an insurance product. Andrew suggests 3%. I don’t disagree.”
  — Barry Ritholtz [21:45]

Important Timestamps

• 02:01 — Introduction to the problem: Everything is correlated during stress
• 03:34 — Historical context: Bonds as “Superman” diversifier, and what’s changed
• 05:16 — Failures of the liquid alternatives industry, high correlation to equities
• 06:46 — Managed futures: how they deliver diversification, not just Sharpe
• 08:27 — Blow-up risk explained and why managed futures are structurally safer
• 10:34 — Fake diversification and the flaws of industry product design
• 12:50 — DBI’s disciplined approach: only two strategies make the cut
• 14:07 — Hedge fund replication: copying strategy themes, not trades
• 16:13 — Diversification as protection against bad luck and shocks
• 18:39 — Advisors' challenges educating clients on “boring” diversifiers
• 21:45 — Sizing diversifier allocations and setting expectations

Final Takeaways

• Traditional diversification has become less effective, especially in inflationary or disruptive periods.
• Managed futures ETFs and true, low-cost replication strategies offer genuine diversification without hidden risks or high fees, when implemented faithfully.
• Marketing and product proliferation in the liquid alts space often leads to “fake diversification.” Investors should scrutinize correlation, long-term evidence, and strategy transparency.
• Thoughtful behavioral framing is essential—advisors should liken diversifiers to insurance, setting realistic, long-term expectations.
• Don’t oversize these positions: 3% is a prudent target for true diversifiers.

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