The appeal of assets less dependent on upside in either asset class, such as managed futures and private markets, is increasing due to worries that the huge swings in equities and bonds from last year may return in 2023.
The 60/40 portfolio and other conventional diversification methods were upended by rising interest rates last year, which also stimulated demand for investments that promise returns that are unrelated to broader markets.
Bonds and stocks have both risen so far this year. However, some market players are investing money in so-called alternative investments because they believe the Federal Reserve’s battle against inflation will keep markets erratic.
The present macro environment isn’t the best for equities, according to what we’re witnessing right now, according to Chung Ma, managing director of the Portfolio Solutions Group at Virginia Retirement System, which manages around $100 billion.
Over the past year, VRS has increased its allocation to commodity trading advisors, or CTAs, funds that look to profit from price patterns in a variety of asset classes, by 20% to 25%. By the end of the year, the fund hopes to have between $300 million and $500 million invested in the strategies.
According to Ma, these investments should produce a “stream of returns that can give you a smoother ride.”
According to the BarclayHedge Fund Flows Indicator, CTAs and managed futures funds are two examples of alternative investment types that flourished amid 2017’s volatility, increasing their assets to $362 billion from $348 billion at the beginning of 2022.
A lot of the tactics recorded impressive gains. The 10 largest managed futures funds’ returns are tracked by the SG Trend Index, which saw a 27.35% increase last year while the S&P 500 experienced a 19.4% decline.
However, such kinds of returns are unusual, and CTAs have performed less well in less turbulent environments. Since 2000, the SG Trend index has increased by 6.52% on average annually, compared to the S&P 500’s total return of 7.94%.
According to Maria Vassalou, co-CIO of Goldman Sachs Asset Management’s multi-asset solutions, “It’s not a cure-all and it doesn’t always work.” “But trend following typically does well in periods like this past year,”