Among those who believe we have shifted into a new political and economic cycle, there is a growing chorus of voices that say the 10-year bull run in equities is heading toward a new direction as well. As such, investors are looking for investments to protect and enhance returns when this cycle ends.
For various investors - from individuals to family offices to large institutions - integrating a flexible and durable strategies found in managed futures funds is now on the minds of more investors.
Let's first take a look at the market conditions that are starting to indicate that the bulls may be getting tired. For starters, the Federal Reserve Bank's recent moves to raise interest rates to bump up rates to 2.25 percent looks to be part of a continuation of tightening on monetary policy. The issue for economists and traders is that will affect various asset class prices. Even with rising rates, here's also not much room for the Fed to move these days, with interest rates still near historic lows. There is also the issue of the US debt, now topping $15.3 trillion, some wonder when that number begins to catch up with the market. The interest owed on that is forecast to triple in the coming decade to nearly $1 trillion per year, according to the Congressional Budget Office. Countering that is an economy that continues to grow, employment and consumer spending figures that are strong and solid corporate earnings.
Of course, there is no telling when the bull market will end or just how severe the next downturn will be.
So what to do about it? For more portfolios, the key is true diversification. What that means is investors are seeking investments that can go short fairly easily when markets turn. They also are looking for liquid markets that allow for efficient trading, such as the listed derivatives markets. And they are looking for investments that enable notionalized trading - which allows investors to put up a percentage of cash that still meets the minimum cash investment. Managed futures funds can do just that.
Finally, managed futures fall under favorable tax treatment, sometimes called the 60/40 tax treatment. Specifically, it is IRS Section 1256 allows 60 percent of a gain or loss to be considered "long-term" and 40 percent as "short-term" regardless of how long you hold the trade. That is a more favorable treatment than other asset classes. (Capital Trading Group, LLLP ("CTG") and its affiliates do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.)
Given all of that, what might investors look for in the coming months and years? For one thing, managed futures boast a number of trading styles, methods and focus on various asset classes. Some are focused on options strategies in the futures markets. Others are trend-following systems that can be done by algorithm or perhaps as a discretionary fund run by a human trader. Along with a diversity of trading styles and strategies, managed futures delve into a variety of asset classes.
There are some market sectors and asset classes that are not correlated with stock markets. As such, they can serve as a shock absorber for portfolios when the markets turn. Some may offer capital preservation but for most investors, such managers are looking liquid asset classes that profit when traditional stock markets are falling. This may ultimately offset equity and bond losses, or it enhance a defensively postured portfolio as well.
The next market cycle has not occurred. But by most accounts, it's on its way. This could be the best time to get into position for the next cycle that comes our way.
Finally, we will decidedly end our notes with our reaffirmation of the growing need for alternative strategies. We would like to think that our alternative view on markets is consistent with our preference for alternative risk and alpha driven strategies. Alternatives offer the investor a unique opportunity at non correlated returns and overall risk diversification. We believe combining traditional strategies with an alternative solution gives an investor a well-rounded approach to managing their long term portfolio. With the growing concentration of risk involved in passive index funds, with newly created artificial intelligence led investing and overall market illiquidity in times of market stress, alternatives can offset some of these risks.
It is our goal to keep you abreast of all the growing market risks as well as keep you aligned with potential alternative strategies to combat such risks. We hope you stay the course with us, ask more questions and become accustomed to looking at the markets from the same scope we do. Feel free to point out any inconsistencies, any questions that relate to the topics we talk about or even suggest certain markets that you may want more color upon.
Capital Trading Group, LLLP ("CTG") and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Capital Trading Group, LLLP ("CTG") is an investment firm that believes safety and trust are the two most sought after attributes among investors and money managers alike. For over 30 years we have built our business and reputation in efforts to mitigate risk through diversification. We forge long-term relationships with both investors and money managers otherwise known as Commodity Trading Advisors (CTAs).
We are a firm with an important distinction: It is our belief that building strong relationships require more than offering a well-rounded set of investment vehicles; a first-hand understanding of the instruments and the organization behind those instruments is needed as well.
Futures trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.
Nell Sloane, Capital Trading Group, LLLP is not affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.This newsletter is published by Capital Trading Group, LLLP and Nell Sloane is the editor of this publication. The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete. It should be noted that Capital Trading Group, LLLP nor Nell Sloane has verified the completeness of the information contained herein. Statements of opinion and recommendations, will be introduced as such, and generally reflect the judgment and opinions of Nell Sloane, these opinions may change at any time without written notice, and Capital Trading Group, LLLP assumes no duty or responsibility to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Any references to products offered by Capital Trading Group, LLLP are not a solicitation for any investment. Readers are urged to contact your account representative for more information about the unique risks associated with futures trading and we encourage you to review all disclosures before making any decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Nell Sloane, Capital Trading Group, LLLP and their officers, directors, and/or employees may or may not have investments in markets or programs mentioned herein.