Those that were hoping for a rapid return to normalcy heading into this year are in for disappointment according to the International Monetary Fund, which is currently forecasting persistent elevated global core inflation and a muted global GDP outlook five years out. Volatility and downside risk will remain major factors for investors to contend with in the coming years, and the addition of a managed futures strategy to portfolios could prove to be a boon in times of prolonged global economic risk.
IMF anticipates that global headline inflation will fall from 8.7% last year to 7.0% in 2023, driven largely by falling commodity prices, while core inflation will fall slower and IMF models are largely forecasting for inflation to take until 2025 to fall back into normal bounds.
Global GDP is also expected to fall from 3.4% last year to 2.8% this year and then rise marginally to 3.0% in 2024, with advanced economies weighing down growth in the coming years.
“Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023,” IMF wrote in the World Economic Outlook overview. That growth is expected to remain muted in 2024 as well, remaining largely flat at 1.4%.
Image source: International Monetary Fund
Looking further ahead, IMF forecasts for global GDP of just 3% in 2028, its lowest five-year estimate in decades as persistent inflation and bank risk are likely to weigh heavily on global growth alongside long-term impacts from Russia’s war in Ukraine and heightened tensions between the U.S. and China.
“The financial challenges that a number of countries have experienced are casting a shadow on our outlook,” Pierre-Olivier Gourinchas, IMF research director, told WSJ. “We are seeing a lot of downside risks going forward.”
Hedging for Longer-Term Economic Risk With DBMF
Risk and muted global economic performance are factors that advisors and investors should be positioning portfolios to contend with on a longer-term basis. The iMGP DBi Managed Futures Strategy ETF (DBMF) allows for the diversification of portfolios across asset classes uncorrelated to traditional equities or bonds.
DBMF is an actively managed fund that uses long and short positions within the futures market on several asset classes: domestic equities, fixed income, currencies, and commodities (via its Cayman Islands subsidiary). The fund’s position within domestically managed futures and forward contracts is determined by the Dynamic Beta Engine, which analyzes the trailing 60-day performance of CTA hedge funds and then determines a portfolio of liquid contracts that would mimic the hedge funds’ averaged performance (not the positions).
DBMF is currently down about -9.76% YTD, providing a buying opportunity for advisors and investors looking to add the non-correlated opportunities that managed futures can provide.
See also: “Andrew Beer: This Is the Time to Buy Managed Futures“
The fund is currently long one-year Treasuries, MSCI EAFE, and gold, and is short all of its other holdings which include the S&P 500, crude oil, the yen and euro, emerging markets, and various Treasuries, and has management fees of 0.85%.
For more news, information, and analysis, visit the Managed Futures Channel.