January’s wild ride set the tone for a jittery year in market performance. While the first quarter of 2016 has managed thus far to recover from its precipitous initial swoon, investors aren’t feeling comfortable with the current state of affairs. Fed policy regarding interest rate direction, a strong dollar, and depressed commodities are key factors weighing on markets in 2016. But the largest wildcard and millstone around the neck of 2016’s market performance will be the struggling global economy. Terrorist activism combined with stalled or declining economies led by China are likely to dictate in large measure the course of the market in 2016.

It’s a Mad, Mad World

UBS summarized the investor angst nicely in their first quarter report: Investors realize they can no longer ignore the impact of these forces on their portfolios. They also find that the global nature of current issues, such as the Chinese economy and the collapse in oil prices, makes it difficult to gauge where things are headed… Nine out of 10 have held their cash steady or increased it since the crisis… When it comes to putting their money to work, investors seem paralyzed—only 33% see market declines as opportunities to deploy cash (UBS Investor Watch: Analyzing investor sentiment and behavior 1Q 2016).

But all is not doom and gloom on the horizon. The need for strategic planning in portfolios to gain adequate exposure to profits while balancing overall risks makes for spirited discussions between investors and advisors. Emerging managers in the alternatives space are a vital piece of this dialogue, as they have the skills and strategies to deliver on alternative return streams in both up and down markets. Despite their deep-seated reticence to go out on the proverbial active market limb, investors show an increased interest to hear about specialized strategies from emerging managers that are proven to be nimble, differentiated, and successful in post-crisis markets, particularly on the short side.