We speak with a diverse range of investors—domestic and international, institutional and retail, alternatives-focused and equity-centric. Typically, they have a variety of questions and concerns driving their current thinking. However, in recent weeks, there’s been a singular focus: the return of President Trump. It’s remarkable how much of a Rorschach test he has become.

For macro topics like inflation or growth, we usually see a fairly narrow range of opinions—around 10-15% of people expecting slightly lower inflation, 10-15% anticipating it to be a bit higher, with most clustered near the target, expecting the status quo. Currently, not a single person thinks we are in a state of equilibrium. On one side, 50% believe we’re headed for runaway inflation fueled by exploding deficits, Fed pressure, eroding confidence in the USD, and soaring commodity prices due to global turmoil. The other 50% foresee a deflationary crisis spurred by the deportation of 10 million immigrants, a $2 trillion reduction in the federal budget, and a rampant USD disrupting emerging markets and driving commodity prices down. Adding to this uncertainty, President Trump, the world’s largest one-man volatility machine, has teamed up with perhaps the only person who could rival him, Elon Musk. Volatility squared.

These factors, among others, have realigned market assumptions, significantly increasing the likelihood of problematic inflation or deflation over the next twelve months. Investors face a FLATION complication.

Successful portfolios will account for this when evaluating current asset allocations. Managed Futures might be the only investment strategy that has thrived in both of these scenarios, thanks to its ability to go long and short on commodities, currencies, and global bonds. Historically, adding Managed Futures to traditional stocks and bonds has increased a portfolio’s annualized return and lowered its standard deviation. Importantly, it is completely detached from the emotional aspects of analysis, which is crucial in volatile and tense times. No value judgments here—it plays the hand it is dealt. A powerful diversifier for uncertain times.

Let’s dig deeper…

For the first set of fears—runaway inflation, exploding deficits, a collapsing dollar, and high commodity prices—trend strategies would likely be shorting the long end of the bond market, shorting the USD against major currencies, and holding long positions in hard assets like gold and crude oil.

For deflationary disaster fears—trend strategies would likely be long on the USD, short on commodities such as copper and oil due to declining global demand, and long on bonds as rates return to lower bounds.

We’ve always believed that portfolios are generally overexposed to the current state of the world. Equity and credit markets usually favor stability. If you’re unsure how things will unfold, consider the investment approaches and tools in your portfolio. Managed Futures provide exposure to shifts in the world that you can’t easily predict or access, as most portfolios are long-only and lack the tools to engage in currency and commodity markets. With credit spreads tight and equity markets at relatively high valuations, adding some diversification and exposure to significant moves seems prudent.