We believe in building well-diversified, durable, all-weather portfolios that meet the risk parameters of clients rather than targeting return levels that may be inappropriate, given the low risk-free environment and current heightened valuations of key assets classes.
This is even if it means leaving some bull market returns on the table.
To that end, adding one or more of these exposures may represent a good way to diversify your portfolio.
However, be mindful of the heightened level of volatility an investment in a single trade such as volatility, a currency pair or a commodity may bring, and size the trade accordingly.
Alternatively, consider the benefits of absolute return funds. While they may not express your ‘fear trade’ in a pure manner, investment strategies such as macro, managed futures and market-neutral funds all have the ability to play a role in adding diversification and dampening volatility if that is the view you wish to express.
The Vix may be at historic lows but volatility is not dead; it is just finding new and different ways to express itself.
And, in these uncertain times, we would say it is a wise person who looks to build this into their investment strategy.
