How to hedge and what instruments to use in uncertain times

UBS Investor Forum – July 2016

Topic 1. Hedging – portfolio protection in uncertain times

Risks:  1  debt burden especially in the EU
              2 monetary policy (either exhaustion or helicopter money)
              3 politics
              4 China lands harder
              5 lack of growth in the medium term (helicopter money)


Hedge:  1 hedging European risk by being underweight peripheral bonds
                2 hedging European curve by using the US interest curve, which is so flatten, mostly negative (How far more negative the boom can go?)
                3 hedging lack of growth by being overweight gold, though it’s boring
                4 sell calls on Oct or Aug on European indexes, and buy them in next month (July), a calendar that inherently short volatility but long gamma, which is supposed to cost 10 basis point and make 3 or 4 percent
                5 underweight Austrian dollar versusoverweight the US dollar
                6 no way to hedge, market move almost instantaneously after seeing a result
                7 hedging risk is also hedging all the return potential, so one should find out relative value, pricing opportunity in firms