Concerns that last year’s wild swings in stocks and bonds will resurface in 2023 are boosting the appeal of investments less dependent on upside in either asset class, such as managed futures and private markets.
Soaring interest rates sparked a rare lockstep tumble in equity and fixed income last year, upending traditional diversification strategies such as the 60/40 portfolio and igniting demand for investments that aim to deliver returns not correlated to broader markets.
Both stocks and bonds have bounced so far this year. Yet some market participants are convinced the Federal Reserve’s fight against inflation will keep markets volatile and are allocating funds to so-called alternative investments.
“Given everything we’re seeing right now, the current macro environment isn’t the most favorable for equities,” said Chung Ma, managing director for the Portfolio Solutions Group at Virginia Retirement System, which oversees around $100 billion.
VRS has increased its allocation to commodity trading advisors, or CTAs – funds that seek to exploit price trends in a range of asset classes – by between 20% to 25% over the past year. The fund expects to have between $300 million to $500 million in the strategies by year-end.
Ideally, such investments will generate a “stream of returns that can give you a smoother ride,” Ma said.
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