Global asset managers and banks have consistently issued caution in their 2023 outlooks as they anticipate developed market central bank policies to exacerbate many of the challenges of 2022. While individual analysis of asset classes and countries varies, the consistent messaging is that volatility is likely here to stay.
“There is good and bad news for equity markets and more broadly risky asset classes in 2023. The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023,” said Marko Kolanovic, chief global markets strategist and co-head of global research at JPMorgan in a 2023 market outlook. “The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.”
This volatility isn’t just forecast for the near term, however, but is part of a larger continuing regime shift.
“The Great Moderation, the four-decade period of largely stable activity and inflation, is behind us. The new regime of greater economic and market volatility is playing out – and not going away, in our view,” wrote BlackRock in its 2023 outlook.
Goldman Sachs takes a somewhat optimistic but cautioned outlook for the year based on two scenario possibilities: either the U.S. narrowly avoids recession and risk assets benefit, or the U.S. enters a mild recession followed by a strong stock rally similar to what has been seen in previous economic downturns.
“Our base case implies financial markets can regain traction in 2023. In equities, we see more paths to gains than losses by year-end. Bonds are also expected to rise, as today’s higher yields provide an ample cushion to absorb any further increase in interest rates. But there will no doubt be curves along the road ahead,” Goldman Sachs wrote in its 2023 outlook.
Even in this more hopeful outlook for U.S. equities by year’s end, there is a high degree of implied volatility and a massive shift in market trends in the second half of the year. All of these are things that managed futures strategies capitalize on, making them a worthwhile consideration within portfolios in both the near term and the longer term.
Investing for Volatility With DBMF
Managed futures strategies largely offered strong performance last year, capitalizing on market volatility and dislocations. The iMGP DBi Managed Futures Strategy ETF (DBMF) has been an immensely popular choice for advisors and investors alike in the last year. With the economic downturn and challenges ahead this year, DBMF could be positioned for continued outperformance; at a minimum, it offers strong hedging potential for equity underperformance in the near term.
DBMF allows for the diversification of portfolios across asset classes uncorrelated to traditional equities or bonds. It 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 takes long positions in derivatives with exposures to asset classes, sectors, or markets that are anticipated to grow in value and takes short positions in derivatives with exposures expected to fall in value.
DBMF has management fees of 0.85%.
For more news, information, and analysis, visit the Managed Futures Channel.