Morgan Stanley IM: Managed Futures as a Potential Solution to Market Volatility

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Combined with a bearish cycle across the broad spectrum of commodity markets, the global investment marketplace experienced one of the most prolonged equity bull markets ever. As happened many times before, this period of buoyancy ultimately resulted in higher inflation, being tackled now by governments and central banks globally. Investors are experiencing further uncertainties as geopolitics are combining with fundamental forces to keep elevated volatility across a wide array of market sectors. In periods of such volatility, particularly coinciding with a period of exceedingly high equity/bond correlation, clients may be looking for an alternative investment which may not only provide diversification and potential portfolio protection to market fluctuations, but also potentially capitalize on increases in volatility.

Historically, managed futures investments have offered low correlation not only to traditional portfolio investments such as stocks and bonds, but to other alternative hedge fund investment strategies as well. Viewed as an absolute return alternative investment strategy, managed futures investments typically have a low beta to risky assets and are uncorrelated to long-biased hedge funds, private equity, and other alternatives. Moreover, managed futures have no inherent long bias to any asset class, and at periods may be short any number of markets. That could make managed futures an important part of a retail or institutional investor’s portfolio in the current environment which may continue for some time.

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