Multi-asset stock hedging does not imply that one cannot see positive returns in a positive year for equities. In fact, the FTSE Multi-Asset Stock Hedge Index is up 5.3% year-to-date. On the other hand, if stocks do have a difficult period, the benefit of multi-asset stock hedging becomes more tangible. For example, the S&P 500 closed at 2011.36 on September 18 before finishing at 1862.49 on October 15. The high-to-low in the September-October sell-off for the popular benchmark was -7.4%. In the same period, the FTSE Multi-Asset Stock Hedge Index (”MASH”) offered 3.3%, without shorting or leverage.
What about more severe stock shocks like the 2011 Eurozone crisis? The S&P 500 dropped -18.8% on a closing basis from 7-7-2011 to 10-3-2011. The FTSE Mutli-Asset Stock Hedge Index (”MASH”) garnered 12.4%.(Note: You can make additional inquiries about the “MASH” Index by contacting Pacific Park Financial, Inc.)
Do I really think that a bear market is imminent? No, but it is inevitable. And one way to protect, even profit, against an inevitable disaster in equities is through multi-asset stock hedging.
Could a bear market be rapidly approaching? If oil collapsed to $40 per barrel for any meaningful length of time, that might be enough to set the wheels in motion. Think about it. You could see a debt crisis/currency crisis or a militaristic event in Eastern Europe or the Middle East – regions that depend heavily on oil revenue. Equally concerning, with energy company debt comprising 20 percent of high yield junk, bank exposure to the debt might cause trouble for the financial system. Lack of interest in acquiring junk debt may already be a sign of troubles with the liquidity and pricing of the debt down the road.
Keep an eye on the iShares 7-10 Year (IEF):iShares High Yield Corporate Bond (HYG) price ratio. If IEF:HYG continues rising the way that it has since July of this year, stocks could be in for an uncomfortable ride. Widening credit spreads and general disdain for the high yield arena tends to foreshadow stock asset woes.