This week, the Federal Reserve lowered its economic growth forecasts, projecting inflation to rise at an average rate of 2.7% this year. GDP growth projections through 2027 were also revised downward, with Fed Chair Jerome Powell emphasizing that uncertainty remains “remarkably high.”
The primary driver of this downward trend is the volatility in trade policy under the new Trump administration, including tariffs that have been imposed or threatened. Frequent shifts in policy create an unpredictable environment, causing investor sentiment to swing rapidly. This results in price fluctuations, increased correlation across asset classes, and a greater chance of mispricing. This uncertainty means fund managers must adapt their approaches to avoid excessive exposure to risk while maintaining opportunities for growth.
Many firms, such as Texas-based Anson Funds, led by Chief Investment Officer Moez Kassam, rely on a multi-strategy approach to achieve uncorrelated returns. This involves using a mix of long and short positions, structured financing, arbitrage, and sector rotation.
Some of the effective strategies utilized by Anson Funds and Kassam include:
- Long-Short Investing: Balancing bullish bets with short positions on overvalued stocks. This can protect against downturns while capturing gains from market inefficiencies.
- Arbitrage Opportunities: Merger arbitrage and other structured financing deals capitalize on pricing discrepancies.
- Tactical Asset Allocation: Shifting between asset classes to avoid sectors most vulnerable to economic turbulence.
- Momentum Reversals: Identifying and capitalizing on momentum shifts for an edge in volatile markets.
In times of heightened uncertainty, a diversified portfolio is critical. Beyond equities, firms often diversify into fixed-income, commodities, currencies, and alternative assets to reduce exposure to any single market shock. Risk management also plays a crucial role, with firms employing stop-loss mechanisms, options hedging, and dynamic risk assessment models to weather market turbulence. Anson Funds exemplifies how adaptability can drive outperformance in volatile conditions. By leveraging deep research, a flexible mandate, and a deep understanding of market cycles, Moez Kassam and his team seize opportunities in distressed assets, corporate events, and shifting macroeconomic trends. This proactive approach allows them to generate alpha even in challenging environments.
The Federal Reserve’s ‘Beige Book’ – its monthly report on the state of the economy based on feedback from business leaders – had the word ‘uncertainty’ appear 47 times in its latest edition, compared to only 17 in January’s report. Widespread fears of an economic downturn persist, making it essential for fund managers to refine their strategies continuously. The funds that will outperform in this climate will be those that stay nimble, embrace innovation, and blend quantitative rigor with fundamental insights. For investors, the takeaway is clear: in an unpredictable world, diversification, active management, and disciplined risk control are more critical than ever. As markets react to the ongoing fluctuations and policy shifts, fund managers who can adapt swiftly while maintaining a sharp focus on research and risk control will continue to thrive through the turmoil.
