U.S. stock hedging strategies backfire during market rout

. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.

Those who prepared for violent swings by buying call options on the Chicago Board Options Exchange’s Volatility Index , which would pay off if the market gauge of expected volatility spiked, have also been left wanting. Many mutual funds and exchange-traded funds that are marketed as hedging against declines in the U.S. stock market use relatively simple strategies, continuously buying contracts that would protect their portfolio if the S&P 500 falls below a given threshold. They adjust those thresholds each month, spending heavily on new put contracts in the process.

“You have had to be a very nimble tail hedge manager and a lot of them ... are rules-based and formulaic and that’s a dangerous place to be,” says Peter van Dooijeweert, a hedging specialist at hedge fund Man Group PLC.Funds that use a broader mix of assets to hedge against downturns have had a far better year. The CBOE Eurekahedge Tail Risk Index, which tracks a basket of specialist hedge funds, is up 13 per cent year to date by contrast.

Canada Canada Latest News, Canada Canada Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

How the U.S. midterms could ripple through the stock marketA look at some areas that will be in focus as Americans head to the polls Keep an eye on $DIS - apparently cancelling your membership will result in a major financial windfall for you. Congratulations. Fluctuations of elections Will affect a market's odds If Democrats be elected Taxed money go abroad If Republicans elected Taxed money stay inside But democracy affected Will be with a rights resized Freeland says cancel your globe and mail subscription
Source: globeandmail - 🏆 5. / 92 Read more »