How to Help Your Clients Invest Comfortably with Markets at All-Time High

by | Feb 9, 2017 | Hedging, Technical Analysis, Volatility

In talking to advisors recently, many have relayed client concerns about the markets – which is keeping money on the sidelines. Many just think they have missed the big up move with the markets near all time highs. You have to be invested to grow with the markets. The statistics show that missing out on the 5 or 10 best days of the year will harm your long term returns. Often fear prevents individuals from investing. Instead, they might try to time the market or wait for a pullback. Sometimes that never happens and they miss out on a nice bull run higher. Or they decide to sell and go to cash – only to have to buy back in later at a higher price.

The good news is that with markets at highs and volatility at low levels, the cost of hedging has become extremely cheap. With protection on sale, this could be the opportune time to considering using a hedged equity strategy. As of this writing, the annualized cost to hedge in our Buy and Hedge Classic strategy is running around 2.8%. To be clear this is not a fee. Instead, it is the cost to build protection and build a hard floor into a portfolio. For a little bit of money, we can reduce the downside but only marginally reduce the upside. The ability to participate in the majority of the gains is still a benefit to your clients.

What About Investing Lump Sums?

Another question comes up around how to handle getting invested when one of your clients receives a lump sum of money. Maybe an inheritance, sale of a business, or a 401k rollover? Rather than try to leg in or time the market, a portfolio with a cost-effective hedge can remove a lot of that fear. If the timing was off and the market moved low enough, we can potentially monetize the hedges and purchase more at lower levels.

The value ZEGA brings to building hedged equity is more than just simply buying some shares and protection. We understand that the key to any successful hedging program is our ability to understand how to reduce our cost of hedging.

Give us a call to talk about how hedging can help your clients!