If the world is as volatile as the headlines would have us believe, then perhaps we should all just invest in volatility, sit back and reap the rewards?
In reality, making money from volatility is more difficult than some market commentators would have us believe.
We do not dispute the geopolitical world has become more uncertain during 2016 and into 2017, but that is not necessarily reflected in the markets.
We need to look at volatility and geopolitical uncertainty and to consider how best to build it into your portfolio.
To borrow a line from Eurasia Group, it may well be that the world went into 2017 in “geopolitical recession”, with no obvious light at the end of the tunnel.
If that is the case, then would you not want to have been long volatility through the second half of 2016 and into 2017? Well, the short answer is, no.
The Pro Shares Ultra Vix Short-Term Futures ETF lost 94% of its value during 2016, while the assets under management of the iPath S&P 500 VIX Short-Term Futures ETN fell by 16% in the first six weeks of 2017, as volatility investors retreated to nurse their wounds.
