Nearly four years ago, Rydex|SGI Managed Futures Strategy (RYMFX), a fund designed to track the S&P Diversified Trends Indicator (S&P DTI Index) arrived on the scene. Earlier this week (1/5/11), WisdomTree launched the first ETF to target the S&P DTI – WisdomTree Managed Futures Strategy Fund (WDTI).
WDTI seeks to achieve positive total returns in rising or falling markets (absolute returns) not directly correlated to stock or bond markets. It is an actively-managed* ETF seeking to match the returns of a quantitative rules-based strategy known as the S&P DTI Index (“Benchmark”).
The S&P DTI Index, and therefore the fund, typically takes long or short positions in 24 commodity and financial futures contracts based on a 7-month moving average calculation. The exception to the above is energy, which will be either long or flat, but not short. At rebalancing, the S&P DTI has 50% allocated to commodities and 50% to financials (U.S. Treasury futures and foreign currencies).
The S&P DTI was originally developed by Victor Sperandeo (aka “Trader Vic”). It is a widely-used benchmark intended to capture the economic benefits derived from rising or declining price trends in the markets for commodity, currency, and U.S. treasury futures. For those seeking additional information on the S&P DTI, I would suggest the 42-page Standard & Poor’s Diversified Trends Indicator – Methodology and Implementation (pdf). Additionally, you can call up RYMFX in your charting software to see actual performance and its negative correlation to the S&P 500.
WDTI has a 0.95% expense ratio (versus 1.99% for RYMFX) and will issue 1099s instead of K-1 statements for tax purposes. The WDTI overview page shows the current weightings for each of the six commodity groups and two financial groups, but it does not indicate whether they are long, short, or flat at the present time.
* There is likely to be some debate as to whether WDTI is actively-managed or not. None of the WisdomTree marketing literature refers to it as actively-managed, and the prospectus makes no mention of “management risk” which is typically required for actively-managed funds. Additionally, the fund claims to be tracking a specific benchmark/index. However, inside the WDTI Statement of Additional Information (pdf, then click on SAI Tab), is the following disclosure: “The Fund is actively managed using proprietary investment strategies, techniques and processes. There can be no guarantees that these strategies, techniques and processes will produce the intended results.” Why WisdomTree wanted to bury this information is unclear.