Although CNBC would rather talk about the remarkable run in U.S. equities, there has been an unwillingness to address the extraordinary success of “risk-off” assets like EDV. On the contrary. The unanimous expectation for 55 of the leading economists in the country had been for the 3.0% 10-year yield to climb in 2014, with an average projection of 3.4%. It fell to 2.2.% The unanimous decision this time around is for the 10-year to rise from 2.2% to 3.0% in 2015. Alas, it is falling yet again here in the New Year. Granted, I may not be the only contrarian on middle-of-the-yield-curve rates, but I do not run a bond fund and I have plenty of stock exposure. I just know when and how to employ multi-asset stock hedging.
Until we see a genuine bear scare, I do not expect tremendous coverage of the index that I helped to create with FTSE-Russell, the FTSE Custom Multi-Asset Stock Hedge Index. I affectionately refer to it as the “MASH” Index. Yet it should be noted that there are a variety of currencies, commodities, foreign bonds and U.S. bonds that have a history of exceptionally low correlations with U.S. stocks. What’s more, low correlations do not mean poor performance when stocks are soaring and great performance when stocks are struggling. It simply means that the assets move independently.
That said, month-over-month, the FTSE Custom Multi-Asset Stock Hedge Index (a.k.a. “MASH”) is up 2.5% whereas the Dow logged -2.6%. Year-over-year? MASH gained 6.8% while the Dow picked up 6.3%. Granted, the last month demonstrates that multi-asset stock hedging works particularly well when stocks struggle, but it is hardly a prerequisite. The year-over-year results show that the index can garner admirable gains – better the t-bills or money markets – even in a stock uptrend.
An investor can not invest in the FTSE Custom Multi-Asset Stock Hedge Index (MASH) directly yet, though an exchange-traded note is likely to appear in 2015. Those who may be interested in pursuing a separately managed account can contact Pacific Park Financial, Inc. directly. Do-it-yourself enthusiasts may acquire index components such as zero coupon bonds via PIMCO 20+ Year Coupon (ZROZ), iShares National AMT-Free Muni (MUB) as well longer-dated Treasuries in iShares 10-20 Treasury (TLH). Currencies like the dollar and the franc can be acquired in CurrncyShares Swiss Franc (FXF) and PowerShares Dollar Bullish (UUP). The index also includes gold via SPDR Gold Trust (GLD).