Displaying items by tag: hedging

As markets decline amid tariff concerns, investors are increasingly turning to structured notes for downside protection, income generation, and help staying invested through volatility. These tailored instruments combine features of debt and derivatives to offer asymmetric returns, limiting losses while allowing partial participation in market gains. 

Structured notes with “static buffers” can, for instance, protect against a 15% market drop while providing steady coupon payments. They also enable investors to enhance yield potential by reallocating portions of cash or fixed income holdings into structured products. 

Historically, structured notes with downside buffers have preserved principal in more than 90% of 20-year backtests, illustrating their resilience during turbulent markets. 

Finsum: While not maybe for all investors, structured notes can serve as a strategic tool to maintain exposure and stability when uncertainty runs high.

The Nasdaq-100 Index has long rewarded investors with strong returns, delivering a 19.43% annualized gain over the past decade, outpacing the broader U.S. market’s 13.93% return, though with greater volatility. This volatility, often seen as a drawback, can actually benefit investors through direct indexing, a strategy that allows ownership of individual stocks within an index. 

Unlike ETFs, direct indexing enables tax-loss harvesting, where investors sell underperforming stocks to offset capital gains and lower tax bills while maintaining market exposure. Wealthfront has pioneered this approach with its new Nasdaq-100 Direct portfolio, offering retail investors access to innovative companies and potential tax savings with a low 0.12% annual advisory fee. 

Direct indexing can help investors turn volatility into an advantage by improving after-tax returns while closely tracking the index’s performance.

Finsum: Ultimately, the strategy offers a cost-effective, tax-efficient way to capture the long-term growth potential of the Nasdaq-100’s most dynamic companies.

Stable value funds are a conservative investment option that aim to deliver higher returns than cash while preserving principal. They invest in high-quality bonds that are insured through contracts like guaranteed investment contracts or group annuities, which protect investors from losing money. 

These funds are available only in tax-advantaged retirement plans such as 401(k)s, and according to MetLife, more than 80% of defined contribution plans offer them. Stable value funds are often compared to money market funds, since both are designed for safety and stability. Over the 15 years ending March 2023, stable value funds delivered an annualized return of 2.99%, significantly higher than the 0.55% produced by money market funds. 

While money markets adjust quickly to interest rate changes, stable value funds respond more gradually, which can lead to short-term underperformance when rates are rising. Researching stable value funds involves looking at the fund’s goals, portfolio composition, fees, and historical performance.

Finsum: Advisors should also evaluate management tenure and ensure the fund’s returns align with its stated objectives for clients

While standard ETFs are built for long-term investors, more complex products like leveraged, inverse, and synthetic ETFs are designed for short-term or specialized strategies and carry higher risks. Leveraged ETFs amplify daily index returns, but compounding effects mean they often underperform over longer periods, making them unsuitable for buy-and-hold investors. 

Inverse ETFs, by contrast, rise when their benchmark falls and are typically used as temporary hedges against downturns rather than core holdings.

Synthetic ETFs take a different approach by using swap agreements with banks to replicate index performance instead of directly owning the securities, which reduces tracking error but introduces counterparty risk. These advanced products can be useful in the right hands, yet they require a clear understanding of their mechanics and limitations. 

Finsum: These tools can be tactical moves, not long-term wealth building, but serve short term client desires.

Private equity leaders are cautioning that while industry assets are likely to keep expanding, the number of firms competing for those dollars could shrink dramatically. KKR’s CFO Robert Lewin and Apollo’s president Jim Zelter both suggested that smaller managers, burdened by high fixed costs and limited fundraising capacity, may not survive the next cycle. 

Lewin forecasted a wave of organic consolidation over the next five years, while Zelter warned that many firms may already have raised their last fund without realizing it. Larger players, by contrast, are positioned to thrive, offering a wider array of products and attracting investors eager to simplify their GP relationships. 

Consolidation could also accelerate through acquisitions, with bigger firms absorbing weaker rivals. 

Finsum: The same pressures are expected to spread into venture capital, where scale and distribution strength are becoming just as critical.