What is a Hedge?
An investment hedge involves owning a security position that would be inverse in performance from another security held in the portfolio. In theory, as one position loses value, the other position gains value of a similar magnitude. Investment managers use hedging strategies to help reduce risk in a portfolio and, ideally, invest in hedges that can be applied and removed quickly.
During what is perceived to be long-term market downturns, WealthTrust Asset Management applies a hedging strategy on a portion of the equity allocation of a WealthTrust DBS portfolio. When employed, the WealthTrust DBS Hedging Strategy is intended to reduce or offset the risk of a portion of the long equity position held.
What is the WealthTrust DBS Hedging Strategy?
The WealthTrust DBS Hedging Strategy is a risk management strategy that helps us move into, out of, or offset a portion of a portfolio’s equity allocation efficiently and without emotion.
To accomplish the strategy, we utilize a trend analysis system that measures current vs. historical market movements and provides a signal as to when equity exposure is recommended to be lightened, and, more importantly when to step back into the market with those assets after a market correction.
During long-term uptrends, we allocate a percentage of the WealthTrust DBS portfolio’s equity allocation into widely traded, market-based ETFs, such as SPY or QQQ, which correspond generally to the price and yield of a broad index. Because of their liquidity, certain broad-based ETFs can be easily traded, and the allocation can be moved into cash, bonds, gold and/or an inverse ETF during what we perceive to be market declines, thereby hedging a portion of the equity allocation of the portfolio.
While our hedging strategy comes with no guarantees, we believe that it helps provide our portfolios market protection during long term and significant market shifts. Any investor who lived through the market decline of 2008-2009 understands the value of this tool.