Navigating Volatility: 3 Strategies I’m Using Now

For these clients, I’ve typically implemented 10% split evenly between long-short equity and merger arbitrage. Both of these strategies are inherently hedged with some short positions but are positioned to participate in continued economic expansion.

2. Retired clients generally have a stronger interest in wealth preservation because they would like to minimize downside risk. For these clients, I’ve implemented 10-15% split evenly between equity market neutral and merger arbitrage.

Equity market neutral managers should, in theory, have a net zero exposure to the stock market. E.g., if they own 100 stocks that they think will go up in value over time, they are also short 100 stocks they think will go down in value over time.

3. One additional strategy I’ve implemented for clients is hedged fixed income, often at 5-10% of the portfolio. In a rising interest rate environment, face values of bonds go down as interest rates rise.

We’ve been in a rising interest rate environment since the U.S. Federal Reserve started raising rates in 2015, which is why investors purchasing bonds or bond funds during this time frame may see their bond values in the red. Some fixed income managers can hedge by selling treasury futures short to alleviate some of the downward pressure on bonds as rates rise.

How I implement absolute return managers for each client is part art, part science and part stress testing; it relies on expertise from years of consulting leading financial advisors on how to use these strategies for their clients.

I don’t have a crystal ball but accept the reality that we may be in the late stages of this business cycle; as such, now may be the time to consider hedging your portfolio by implementing absolute return managers as satellite positions.

Vance Barse is a wealth strategist for high net worth individuals, families and business owners. Previously, for nearly a decade, he was an investment consultant to leading private wealth and retail financial advisors around the country. In that role, he managed relationships with advisors, RIAs and family offices. Sign up for Vance’s blog updates at vancebarse.com.

Disclaimer: Please consult a qualified advisor with expertise in these strategies to evaluate if they may be suitable given your investment objectives. Please also consult a qualified CPA regarding the tax implications of investing in these strategies. Please consider using fee-based, instead of commission-based, share classes of these strategies where available. Investing in alternative investments may not be suitable for all investors and involves special risks, such as risk associated with leveraging the investment, adverse market forces, regulatory changes, and illiquidity. There is no assurance that the investment objective will be attained.

Vance Barse (CA Insurance #0L70885) is a registered representative and investment adviser representative with and offers securities and advisory services through Commonwealth Financial Network, a Registered Investment Adviser, member FINRA/SIPC. Manning Wealth Management is a Registered Investment Adviser.