Displaying items by tag: volatility

Thursday, 23 June 2022 03:59

High Volatility Killing the 60/40 Portfolio

Recession, inflation, and interest rate volatility are reaching 40-year high levels of risk which has investors changing things up and ditching the 60/40 portfolio split. Whatever risks investors thought were present in their portfolio 6-months ago are drastically different today. Investors desperately need to re-allocate and re-balance that risk to a more suitable set of investments for the second half of 2022. Investors should look to more alternative investments because there is high-interest rate volatility. In fact, the US has dropped into a recession in over 75% of tightening cycles since the great depression. Generally, these tightening cycles increase the correlations between bonds and equities and hurt the cushion bonds normally bring.


Finsum: Advisors need to think outside the box to prepare for volatility in this cycle. 

Published in Economy
Tuesday, 14 June 2022 04:10

Passive Investing Driving Market Volatility

There is no hiding the huge influx in passive investing over the last couple of decades as a direct result of the ETF boom, but the rise in passive investing is causing more market volatility according to a new academic study. Theoretically with more passive investors active traders will become more aggressive and individual stock demand should be unchanged, but according to the study by UCLA it has increased market vitality and reduced efficiency. Even the skyrocketing number of algorithmic traders can’t offset the passive investors. Markets have far fewer signals and traders to rely on to gain underlying information about a stock, which creates an empty void that is filled up with volatility. Moreover, the paper speculates that as more ESG funds popup this will exacerbate the passive volatility problem.


Finsum: Passive investing has surely increased the average trader's utility, but it comes at the cost of a more efficient market and higher future volatility.

Published in Economy

Hedge funds are one of the leading experts in volatility management, which is exactly why their latest moves might surprise people as they move into crypto and other digital assets. According to a report from PwC the number of hedge funds investing in digital assets is up to a third, and 11% higher than the previous year. It’s hedge funds' specialty and their namesake that they can utilize similar tactics in traditional markets in digital ones to mitigate risk in their digital exposure through derivatives trading. Specifically short positions are extremely useful in the highly volatile crypto markets. Over three-fifths of crypto specializing hedge funds are using these hedging strategies in their portfolio, and this has allowed them to edge out over traditional bitcoin returns. Another surprising finding in the report is that a vast majority of crypto hedge funds have high-net-worth clients and family office investors.


Finsum: Crypto hedging strategies might just be the key to unlocking the full power o digital assets.

Published in Economy
Monday, 06 June 2022 14:37

Balance Sheet Tightening Spiking Volatility

The Fed has begun its balance sheet reductions which those in the industry have labeled ‘quantitative tightening’. QT may be a leading cause of market volatility, as has historically been the case such as 2018. While the Fed poured trillions into the economy to mitigate the effects of the Covid-19 pandemic they are pumping the breaks as a response to rising inflation. One way to gauge the impact of these measures is surveys of consumer confidence which are at their lowest levels since the 2008 financial crisis as reported by the University of Michigan survey. Some experts think this won’t have a strong impact on the rampant inflation because many of the causes are symptoms of Covid related supply shortages. As a result investors are looking at various volatility based solutions to wade the Fed’s storm.


Finsum: The yield curve has begun to flash warning signs of a recession, but maybe the Fed can still orchestrate a soft landing.

Published in Economy
Friday, 27 May 2022 11:31

Managing Clients Through Market Volatility

Volatility is pervading markets and many advisors may have new clients or millennial investors who haven’t experienced this volatility before. A study from McKinsey showed that trust with an advisor is highly correlated with the amount of communication with advisors. Outsourcing financial news, posts, and blogs are a way to not burn clients out. Also, you can give different avenues to communication such as emails as well as social media. Themes can also help concentrate your message and lead to better takeaways. Managing expectations in uncertainty and making sure your clients feel their goals are being addressed are crucial.


Finsum: A little communication goes a long way and investors need to understand how their portfolio is adapting and performing in high volatility. 

Published in Economy
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