Bracing for a rockier market

The stock market has just closed out one of its calmest years in history, but how long can it stay that way? Managed futures funds are designed to offer a smoother ride during rocky markets, and they’ve been getting interest from some investors worried about the market’s next downturn. Alex Healy is a manager at the ASG Managed Futures Strategy fund, which invests in futures contracts related to stocks, bonds, currencies and other investments. Some of its moves are designed to profit when prices rise, and others for when prices fall.

How striking has the market’s lack of volatility been for you?

What’s been remarkable in addition to the low volatility is how long it’s persisted. A year ago, I would have said that we would see at least a modest increase in volatility this year, and I think a lot of investors would have agreed with that. There’s a bit of a feedback loop where investors see that markets are very robust, they have greater confidence and that leads to markets being robust going forward. Until something rocks the boat, conditions continue. That can lead to fantastic rallies, but we also know there’s another side to that coin, that when markets begin to panic, fear can feed on itself.

What could inject more volatility into this market?

It could be any number of possibilities. Geopolitics. Acts of God. Natural disasters. The catalyst for an increase in volatility may not be something dramatic. It may just be something on a smaller scale that causes investors to question the markets. If that spooks enough investors, it could spark a negative feedback loop.

So, the buyers coming into your fund are selling out of stocks to do so?

We’ve seen many institutional investors looking for a diversifier. They know that they have a lot of equity risk in their portfolio, and they are looking for something that zigs when markets zag. No two investors are alike, but the common themes are they are really preparing for a rise in volatility.

Futures just started trading for bitcoin. What do you make of its astronomical rise?

We’ve seen a very strong rally that’s been very hard to explain on fundamental terms. But in behavioral terms, it looks like herding. We see that kind of herding and trending in many markets around the world. It’s just that in more mature markets, you have more participants, and that tends to keep volatility more in line.

Answers edited for clarity and length.