So as I understand it, Mr Benanke will deliver more feedback this evening which potentially will shed additional light on the timing of the QE easing. Given the positive US jobs data which came through last week and our local market response, this could have significant short-term impacts on us again. My question: If I wanted to hedge my portfolio - which consists mainly on of non-rand hedged stocks against a potential local response, are there thoughts on the best way to do this. Very basically I'm thinking of shorting the ALSI which is looking quite gung-ho so far today and then unwinding this short mid to late morning tomorrow after the local impact - if any - is better reflected locally. Any thoughts on thsi logic please and if it makes sense, the time frames to apply Thanks
hmmm, what if he says no tapering until 2015 ?? then you get killed tomorrow .. your logic on the hedge process works, but the logic as to why is not .. nobody has any idea what he'll say, how the market will interpret it nor how the market will respond.. with so many unknowns you jumping into a black water deep end with your eyes closed and hands tied behind your back .. last point, if this is a long term investment portfolio, why hedge at all ?? just ride the waves and use bears for buying
Hi Simon. Thanks for the feedback. Couple of things. I would exclude my investment- long-term - portfolio from the hedge so only the trading element. And perhaps look for 50% to 75% coverage. If he goes the other way, I take a hit on the hedge but the underlying shares being hedged should see a benefit. Aim is not to make a profit but to reduce the impact on the trading portfolio.
I hear you and your logic be right but I remain unconvinced .. hits to your trading portfolio are part of trading, and you've now added another angle of trading, trading the news ahead of the news .. ultimately you trying to hit pause on your trading account and I not sure that after costs/spreads/slippage/etc you'll come out ahead over time .. maybe it a trading style, dunno ..
Can't comment on your logic for wanting to hedge, only on your method. Not much point shorting the ALSI to cover losses in your portfolio unless if suitably represents your portfolio. The ALSI will be propped up by the strongest stocks while your portfolio won't - Also, the ALSI is resource heavy, which might gain from a rand weakness. Rather short something more representative - like the INDI or FINI. Personally, I don't short but I am working on a hedge strategy right now that involves shorting the weakest stocks in the current rally. Still back testing though, so the jury not even out yet
Ha ha too true Stores. Although it's more of an analogy whereby your boat never had a hole until someone climbed aboard with a big drill and basically said "Look in a few minutes I may drill a hole in your boat but there's a chance I may not drill all the way through and I drill pretty slowly so I may only get though the hull by 2015".....anyway I digress - lets see what pans out.
Interesting - almost about turn in his speech last night versus the previous speeach. Almost went out of his way to be more conservative on the tapering off of the asset purchases which felt very deliberate. The underlying fundamentals have actually improved from all accounts and yet the way in which it was presented had such a fundamentally different market impact which was perhaps the point all along.
Fair enough but it could have gone the other way as well. The hedge idea is to make the impact of his comments as portfolio neutral as possible regardless of the way it goes. The most relevant factor for me was your comments on slippage and commissions and the risk-return ratio wasn't really making sense on that front.