Manage Risk and Reduce Portfolio Volatility
with portfolio hedging strategies from
Anchor Research

After several years of consistently higher stock prices, markets have now returned to historical norms for volatility. As a result, more attention has been given lately to strategies for portfolio protection and methods for portfolio gains during declining markets.

Passive Hedging
Hedging is one of the oldest strategies on Wall Street. A portfolio hedge attempts to offset market risk by purchasing an inversely correlated asset to the portfolio.

Gold has long been considered a good hedge against equities, as it has historically gained value during periods of crisis and/or rising inflation. Both of these events tend to produce falling prices in stocks.

A decline in the equities portion of the portfolio is offset by a gain in the gold portion. During a bull market however, a traditional fixed hedge position tends to lose value, as the rest of the portfolio goes up. As a result, during a Bull market fixed portfolio hedges will decline in value, causing the overall portfolio to under perform.

Active Hedging
Active hedging improves upon traditional hedging by tactically applying the hedge only when required by declining markets.

On a buy signal, the hedge position is long, adding concentrated index performance while the market is advancing. On a sell signal, the index position is sold short, hedging out the market exposure and protecting the value of the rest of the portfolio.

The result is an investment methodology that has the opportunity to profit in rising and falling markets with reduced volatility.

Do you have an answer for how to handle the next market decline?

• Keep core asset allocation holdings in tact
  
  
• Mitigate downside exposure
  
  
• Profit from major market declines
  
  
• Opportunity for absolute returns
  

Models for Portfolio Hedging

Equities:
Long/Short NASDAQ 100
Long/Short Small Cap
Long/Short S&P 500

Fixed Income
Long/Short High Yield Bond