May 27th 2021  

Markets

Are you interested in a Hedge with an Edge?

During periods of significant market stress, it is important to define a hedging strategy that aims to generate outstanding performance, while targeting positive returns during bull markets. This can be achieved by being dynamically exposed to volatility.

Why hedge your equity portfolio, and why now?

Equity markets offer investors endless opportunities but investing in equities also poses risks. Historically, stock markets have spent more than 70% of their time recovering from drawdowns, which have a huge impact and are virtually impossible to anticipate. Furthermore, increasing cross-asset correlation has made mitigating drawdowns more difficult. Currently, significant drawdown potential is indicated by high market valuations and the duration of the present bull market.

What is important when investing in hedging solutions?

In order to limit the impact of possible market drawdowns, a hedging solution should be inversely correlated with the equity market and generate positive returns during market crises. Higher levels of protection, however, always involve higher costs, which are unnecessary during bull markets. Thus, an ideal hedging strategy should avoid the bleeding of hedging costs during rising markets while outperforming the equity market during market crises. Quantitative algorithms have helped asset managers achieve this aim. Rule-based hedging strategies, such as Alvola, which dynamically switches between long and short VIX futures, have proved their hedging ability, while also offering positive absolute returns in rising markets.

Are you interested in learning more?

Contact your ISP Group structured product advisor for more information.

Confidentiality Notice and Disclaimer

This document is published by ISP Group Ltd., Zurich, for qualified/professional investors only. It is for information and marketing purposes only and does not target any person who by domicile or nationality is prohibited to receive such information according to applicable law.

While ISP Group Ltd. uses reasonable efforts to obtain information from sources which it believes to be reliable, ISP Securities Ltd. makes no representation or warranty as to the accuracy, reliability or completeness of the information. Unless otherwise stated, all figures are unaudited.

This document is neither an offer or solicitation nor a recommendation or advertisement for the purchase or sale of financial products or financials services and does not discharge the recipient from his own judgment.

The development of the values mentioned in this document originates in the past. Past performance is no guarantee for future performance. Each investment bears risks, such as value and profit fluctuations. Investments in foreign currencies may be subject to currency exchange rates.

Particularly, ISP Group Ltd. recommends that the recipient, if need be by consulting professional guidance, assess the information in consideration of his personal situation with regard to legal, regulatory and tax consequences that might be invoked.

None of the information contained on this document constitutes financial advice or analysis within the meaning of the Swiss Bankers Association's Directives on the Independence of Financial Research.

ISP  Securities AG accepts no liability whatsoever for the content of this document and in  particular accepts no liability for loss or damage of any kind, including direct, indirect  or consequential loss or damage, arising as a result of information contained in this  document and/or as a result of the risks inherent in the financial markets. 


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