As election day slowly creeps up, investors should consider exchange traded funds that track the CBOE Volatility Index, or VIX, to hedge potential political risks, instead of relying on safe-haven plays like Treasuries or gold.
According to Cross Asset Solutions, volatility is the only investment that responds well to massive political shocks, reports John Waggoner for InvestmentNews.
“The market has always been complacent with political risk,” Florian Lelpo, head of macro research at Cross Asset Solutions and a co-author of the paper, told InvestmentNews.
The Cross Asset Solutions study tracked gold, stock volatility, foreign exchange, bonds and the U.S. dollar a month before and a month after the past six U.S. presidential elections since 1992, specifically looking for one-off market spikes.
“What you want in a hedge is a tent-like return: Positive before and negative after,” Lelpo said, noting that only equity volatility produced those results.
SEE MORE: ETFs to Hedge Election Risks Ahead
Currently, the financial markets are looking to a Hillary Clinton presidency but could react negatively with panicked selling should Donald Trump win out.