Why Fund Managers Are Looking for Alternative Ways to Hedge Their Portfolios

The escalating war in Iran is starting to disrupt some of the basic investing rules that portfolio managers have relied on for decades. Normally, government bonds rise when stock markets fall, helping investors reduce losses during periods of uncertainty. However, that relationship is now breaking down, according to Bloomberg. Indeed, both stocks and bonds have recently fallen amid extreme volatility in oil markets. As a result, many fund managers are now looking for alternative ways to protect portfolios.

Claim 70% Off TipRanks Premium

• Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions

• Stay ahead of the market with the latest news and analysis and maximize your portfolio’s potential

Instead of relying mainly on the traditional 60/40 mix of stocks and bonds, investors are adding different strategies and assets. These include options strategies designed to limit losses, increased cash positions, and exposure to commodities. In addition, some investors are turning toward assets such as Chinese stocks, the Australian dollar, aluminum, and soybean oil.

The main concern behind these changes is the risk of stagflation, which is a situation where rising oil prices push inflation higher while economic growth slows down at the same time. In that kind of environment, central banks won’t be able to respond with aggressive interest-rate cuts, since lowering rates could make inflation worse.

Is SPY Stock a Good Buy?

Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust SPY -0.37% ▼  based on 412 Buys, 81 Holds, and 10 Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $843.09 per share implies 27% upside potential.

Disclaimer & DisclosureReport an Issue