U.S. stocks have kept grinding higher this year. Bonds have not. After a five-year slump, the usual cushion in a diversified portfolio has been more of a drag, and some investors are looking elsewhere.
The irony is that newly issued bonds now pay coupons higher than anything seen in decades. The problem is the path that got them there. Yields that keep rising punish the prices of older bonds, and total return is price plus income. Income has improved. Price has not. The arithmetic is starting to tilt toward buying, but the Federal Reserve is still expected to keep raising rates, which would put more pressure on bond prices in the near term. For anyone who wants diversification without waiting that out, the menu has widened.
Managed futures
A diversifier that earns its keep should hold up when stocks are struggling, not merely when they are calm. In 2022 both stocks and bonds had a bad year, and a number of exchange-traded funds built around managed-futures strategies did the opposite. The iMGP DBi Managed Futures Strategy ETF, one of the larger funds in the group, rose 12.8% that year, according to FactSet, in the same calendar year the S&P 500 posted its worst annual result since 2008.
