Displaying items by tag: volatility

There are several threats that are targeting portfolios right now in terms of volatility. The first is inflation, and investors need to make considerations like planning ahead for the near term for big financial costs. Advisors can also help investors with rising interest rates. Rising interest rates mean variable debt will become more costly so more payments are better in the short run, and locking in fixed rates could be smart before yields climb too high. Finally, concerning general volatility due to slowing growth, it really depends on demographics. For young investors, advisors should steer them through market difficulty by bringing their experience with it previously. For more seasoned investors nearer to retirement, investors should consider pivoting to safer assets in order to avoid sharp losses in market swings.

Finsum: There are intricate strategies or specific funds to help in terms of volatility that advisors should consider.

China has another Covid-19 outbreak that could potentially shut down Beijing in the same way that the world saw a lockdown in Shanghai previously. This outbreak is sending a shockwave across all assets that are spiking volatility. The VIX hit its highest point since mid-March, and there was a mild reservation in the bond market. 10-year treasury yields spiked 14 basis points. Bonds and equities aren’t even the whole stories; everyone knows commodities are in a super cycle, but this outbreak is putting that at risk. A variety of different commodities' prices fell in response. Finally, Wall Street is starting to be concerned that a global recession is a possibility with Ukraine-Russia ongoing, Covid surging, and serious inflation risk.

Finsum: The yield curve is also starting to turn which could be really bad for equities markets.

Global turmoil is on the rise, but just as threatening to domestic returns is skyrocketing wages in the U.S. Sure there were great returns last year despite higher wages and inflation, but what stocks are primed to succeed in this current environment? The first is Arcutis Biotherapeutics which has an important drug in stage three clinical trials, which Goldman says could be very profitable. Next is Tricidia another pharma company that has a high buy rating and a potential upside of 126% according to analyst Madhu Kumar of Goldman. Coupang is the final pick which is a South Korean e-commerce retailer. They showed impressively robust revenues when the economy reopened and has great operating leverage according to Eric Cha of GS.

Finsum: These could be potentially good candidates in the tumultuous markets we are seeing currently. 

Investors were beginning to be skeptical of Hedge Fund performance, but volatility was enough to get them back in. Inflows this quarter have hit a 7-year high as they nearly hit $20 billion in Q1 2022. The biggest factors were inflation, the Fed’s response, and rising geopolitical tensions, which are all major sources of volatility recently. Macro strategy had the best performance for Q1 with a 9.1% return which is the highest its been in nearly 30 years. Multi-strategy and value were next up all with positive returns. The S&P 500 meanwhile dropped 5% over the same period. Corporate credit default and other short positions have been grabbed up by hedge funds recently to help counter volatility.

Finsum: This is a hedge fund's most crucial role in the financial world, they excel in these macro scenarios that are crippling standard markets. 

Macro factors are coalescing in a way we haven’t seen in years to produce the perfect storm of potential Volatility, and the VIX is just hovering around medium to long-run averages suggesting a potential swell could be incoming. Advisors should push clients to strategies that can avoid volatility rather than trying to guess this uncertainty. The best option may just be options; a covered-call strategy is a great way to avoid volatility. Investors can lean into betting on medium to long-run growth and sit out excess volatility. This strategy has setbacks particularly if stocks over-perform, so advisors and investors need to carefully monitor the futures market to take full advantage. 

Finsum: Now is a great time to take advantage of anti-volatility strategies, yes they don’t have the long-run games but they have strong protections for market volatility.