Shouldn’t investors just play market-based securities in a way that has worked so well during the Federal Reserve’s QE3? The shock-and-awe, 1.5 trillion dollar, open-ended, bond-buying bazooka that gave U.S. stocks double-digit percentage gains in 2012, 2013 and 2014? After all, the European Central Bank (ECB) is proffering $1.1 trillion euros into 2016. The problem in the comparison between these programs is that 80% of the sovereign bonds are being bought by the national central banks and not the the ECB itself. This means that each country (e.g., Austria, Belgium, France, Germany, Greece, Italy, Spain, etc.) is responsible for its own default risk.
It follows that I might be willing to add a fund like iShares Hedged German Equity (HEWG) to my barbell portfolio, alongside several existing components such as iShares S&P 100 (OEF), SPDR Sector Select Health Care (XLV) and Vanguard Dividend Growth (VIG). I might be a bit more skeptical of iShares Currency Shares MSCI EAFE (HEFA), simply because of the drag of extreme debtors on the periphery of Europe (e.g., Spain, Portugal, Greece, etc.).
By the same token, I have slowly increased exposure over the last three months to a number of existing holdings on the other side of the barbell. They include SPDR Gold Trust (GLD), iShares 10-20 Year Treasury (TLH), Vanguard Extended Duration (EDV) and, more recently, FXY. Remember, multi-asset stock hedging does not mean that your dynamic hedging loses when riskier stock assets win. On the contrary. Both sides of the barbell tend to perform in late-stage bulls.