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MARKET INSIGHTS - Alternative Investing with Managed Futures

Mitigating Risk and Enhancing Returns through Alternative Investments: A Practical Approach

In the 2010s, equity and bond investments dominated, while hedging strategies were deemed less effective. However, this perspective has become obsolete, as short-term volatility continues to threaten market stability. The onset of Covid-19 and exceptionally high inflation rates, coupled with rising interest rates, point to an imminent recession, and geopolitical risks are cause for further concern. To mitigate risks, investors must diversify their portfolios by allocating funds across a range of uncorrelated assets, including commodities, currencies, real estate, and alternative investments. Adequate diversification necessitates reducing exposure to single-source risk, as evidenced by the inverse correlation between equities and bonds in early 2022. Experienced investors can enhance returns and mitigate risk through alternative investments, which provide access to diversified and concentrated exposures in uncorrelated assets. Despite their limited success in the post-financial crisis "bullish decade," alternative investments may prove valuable in the possible upcoming recession.

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