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February Volatility Spike Prompts Investors To Change Their Equity Market Outlook

February’s spike in volatility caused nearly half (42.1%) of investors to adjust their equity market outlook, according to the results of a survey published today by BarclayHedge and Markov Processes International (MPI).

The BarclayHedge, MPI Volatility Angst Survey collected responses from 164 investment professionals about their thoughts on equity markets, economic growth, and the use of managed futures to fend off stock market downturns.

In addition to concerns over increased volatility in the market—which saw its largest-ever one-day spike in the VIX indicator on Feb. 5, 2018—respondents listed rising rates (30.7%) and growing geopolitical concerns (21%), including the threat of trade war, as their top concerns over the next 12 months.

When asked how they would adjust portfolios to respond to sustained volatility in the market, more than half of respondents (51.8%) chose diversification, either by asset classes or strategies (28.6%) or allocations to alternatives (23.2%). Another 23.2 percent said they would increase cash exposure, while just 8 percent explicitly indicated they would increase exposure to active managers.

Historically, professional investors have used managed-futures trading to profit from plunges in the equities markets. That did not happen this year: managed-futures traders lost money like many others did in the February swoon. Nevertheless, 60 percent of respondents supported the use of managed futures to diversify their investments amid market downturns.

“Managed-futures investments are among the best to take advantage of market volatility, because they allow traders to profit from complex bets against market trends,” said Sol Waksman, founder and president of BarclayHedge. “The failure of managed-futures funds to exploit February’s market gyrations is disappointing, but it remains to be seen if that was just a blip or a warning sign of deeper problems.”