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Risk Mitigation strategies as Fed Tapers

SmartStops Comment:   WisdomTree suggests its time to consider a strategy of hedging with ETFs to mitigate risk as the Fed begins to taper. That can be one approach to ensuring that a market correction will minimally affect your portfolio.  But determining when to hedge especially with the costs incurred, becomes the main question. That’s where SmartStops can help – by providing an objective analysis for when risk levels are increasing in the market.  

This excerpt from a white paper of WisdomTree:

Over the last nine months, the Federal Reserve (Fed) has gradually reduced the pace of its asset purchases in
conjunction with improving strength in the U.S. economy. With tapering on pace to conclude October 29, we believe that investors should now look beyond 2014 and start to focus on when, not if, the Federal Reserve will begin to tighten monetary policy. In our view, the way that investors have prepared their portfolios for tapering could be inadequate for the likely market reaction to increases in short-term rates. In the remainder of this discussion, we intend to focus on the following topics:
+ Preparing your portfolio for tightening is different than tapering
+ Traditional approaches to rising rates may not adequately insulate portfolios from losses going forward
+ Duration4-hedged and negative duration exchange traded funds (ETFs) may provide investors with
more comprehensive and intuitive tools to mitigate interest rate risk

For the entire white paper, click here.

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