Retail investors have long been interested in hedge funds and the strategies those vehicles use to generate returns for clients. Unfortunately, hedge funds are exclusive territory with large minimum investments that keep many ordinary investors at bay.
In better news, an array of exchange traded funds make a variety of hedge fund strategies accessible to a broad swath of investors. The WisdomTree Managed Futures Strategy (WTMF) is the place to be for investors seeking managed futures exposure, a strategy long embraced by hedge funds.
Managed futures are considered an alternative investment strategy — an asset class that’s long vexed ordinary investors. However, WTMF makes allocating to alternatives easier and more efficient.
“Managed-futures funds follow the trends in futures contracts across a variety of assets; they tend to do well over extended periods of high volatility, but with stocks trending up,” reports Carleton English for Barron’s.
At a time when investors are jittery about the Federal Reserve tapering, the specter of a 2022 interest rate hike, and sluggish S&P 500 earnings expectations, WTMF’s relevance as a near-term consideration is increasing.
“There are three reasons that most investors want alternative investments: to preserve capital, generate income, and/or have a part of their portfolio uncorrelated to stocks and bonds,” according to Barron’s.
The point about correlations is especially relevant because correlations are running higher than expected in traditional 60/40 portfolios, indicating that advisors need fresh ideas to provide adequate diversification away from stocks and bonds. WTMF can check that box.
Additionally, the WisdomTree ETF recently underwent a refresh, adding a tactical equity model to its roster that could bolster outcomes. That model includes futures contracts on the S&P 500 and the small-cap Russell 2000 Index as Euro Stoxx, Nikkei 225, and S&P/TSX (Canada) futures.
Another WTMF advantage is futures exposure to commodities, an asset class that traditionally benefits when inflation runs hot like it’s doing today.
“Fed economists project that annual inflation will be 4.2% this year, up from June projections of 3.4%. But the outlook for 2022 is 2.2%—only 10 basis points higher than prior expectations,” according to Barron’s.
Even if inflation ebbs next year — and there’s no guarantee that will happen — it’s expected to run above the Fed’s target range of 2% for several more years, indicating that advisors may want to discuss WTMF with clients today.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.