What You Need To Know About Protecting Your Portfolio From Recession And Bear Markets

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Recession risks have risen, and a growth scare triggered the third-highest volatility ever recorded.Investors can benefit from hedging their portfolios with things like bonds and managed futures to ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhat You Need To Know About Protecting Your Portfolio From Recession And Bear Markets\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-12 19:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4712908-what-you-need-to-know-about-protecting-your-portfolio-from-recession-and-bear-markets><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Recession risks have risen, and a growth scare triggered the third-highest volatility ever recorded.Investors can benefit from hedging their portfolios with things like bonds and managed futures to ...</p>\n\n<a href=\"https://seekingalpha.com/article/4712908-what-you-need-to-know-about-protecting-your-portfolio-from-recession-and-bear-markets\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4581","symbol_name":"高盛持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4712908-what-you-need-to-know-about-protecting-your-portfolio-from-recession-and-bear-markets","article_id":"2458605597","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1291620275/image_1291620275.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2458605597","pubTimestamp":1723460400,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"What are the most effective ways to hedge portfolios against recession?Stocks soared 2.3% on Thursday, Aug. 8 because the weekly jobless report came in at 233K, below the 240K consensus and 249K last week. Citigroup calls 260+K weekly jobless claims \"the danger zone.\" After the shockingly weak jobs report, fears of recession significantly increased, triggering a collapse in interest rates. According to JPMorgan, this triggered the Yen Carry trade reversal, which caused $500 billion in emergency hedge fund deleveraging. Of course, just because layoffs are not picking up doesn't mean companies are hiring. The Jolts  showed the weakest hiring in 12 years. In other words, the jobs report might or might not rebound in September. The hurricane in Texas potentially depressed jobs last month. So, let's look at the best available real-time economic data and see what it shows about the economy. Atlanta FedAs of Thursday's economic data, the Atlanta Fed is still estimated to have experienced clos","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4581":"高盛持仓","CBOE":"芝加哥期权交易所","BK4588":"碎股","BK4550":"红杉资本持仓","CTA":"SIMPLIFY MANAGED FUTURES STRATEGY ETF","BIL":"债券指数ETF-SPDR Barclays美国1-3月国债","VOO":"Vanguard标普500ETF","AGG":"债券指数ETF-iShares Barclays综合国债","BK4532":"文艺复兴科技持仓","BK4112":"金融交易所和数据","ZROZ":"PIMCO 25+ Year Zero Coupon U.S","BK4585":"ETF&股票定投概念","BK4559":"巴菲特持仓","BK4534":"瑞士信贷持仓","KMLM":"KFA Mount Lucas Managed Futures Index Strategy ETF","HFND":"Unlimited HFND Multi-Strategy Return Tracker ETF"},"translate_title":"关于保护您的投资组合免受经济衰退和熊市影响您需要了解的信息","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BIL":1,"ZROZ":1,"VOO":1,"KMLM":1,"HFND":1,"CTA":1,"CBOE":1,"AGG":1,"US30Y.BOND":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US3Y.BOND":0.9,"US2Y.BOND":0.9,"US12M.BOND":0.9,"US10Y.BOND":0.9,"US912797GK78.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6},"content_text":"Recession risks have risen, and a growth scare triggered the third-highest volatility ever recorded.Investors can benefit from hedging their portfolios with things like bonds and managed futures to sleep well at night and rebalance to buy blue-chip bargains at the best times.Historically, specific strategies have been better than others at hedging against recessions. Here's a table showing every bear market since 1992 and how hedges performed.You don't want to remain overweight hedge funds when bear markets end, as hedge funds can crash, and blue-chip stocks average 40% gains in the first year after a bear market bottom and 60% gains two years after.Trailing stops are a prudent tool that, while not perfect, are wonderful at maximizing the gains from hedges during bear markets and then rebalancing into blue-chip bargains near the bottom of the market. You can't nail the exact bottom, but you can get pretty close.   tieroDisclosure I'm not providing personalized investing advice. I'm simply sharing what I am doing for my family charity fund and the logic, reasoning, and why it’s right for me. Please make your own informed investing decisions based on your personal needs. For personalized investing advice, consult a fiduciary registered investment advisor (RIA) or another qualified investment advisor. Today, I want to give members and readers a special report that I've been in demand for in recent weeks. \"How can I protect my portfolio from recession and bear markets?\" Understandably, many of us have been asking ourselves this question, so today, I'll answer it by looking at three things.  What is the risk of an economic recession right now? What are the most effective ways to hedge portfolios against recession? How do I know when to sell my hedges and rebalance back into stocks?     What is the risk of an economic recession right now? Stocks soared 2.3% on Thursday, Aug. 8 because the weekly jobless report came in at 233K, below the 240K consensus and 249K last week. Citigroup calls 260+K weekly jobless claims \"the danger zone.\" After the shockingly weak jobs report, fears of recession significantly increased, triggering a collapse in interest rates. According to JPMorgan, this triggered the Yen Carry trade reversal, which caused $500 billion in emergency hedge fund deleveraging. Of course, just because layoffs are not picking up doesn't mean companies are hiring. The Jolts (Job layoff and turnover survey) showed the weakest hiring in 12 years. In other words, the jobs report might or might not rebound in September. The hurricane in Texas potentially depressed jobs last month. So, let's look at the best available real-time economic data and see what it shows about the economy. Atlanta FedAs of Thursday's economic data, the Atlanta Fed is still estimated to have experienced close to 3% growth this quarter. New York Fed The NY Fed is less bullish but still expects growth of 2% in 2025 and 2026, which is basically what economists and the Fed expect. The NY Fed model has steadily improved in the last few weeks. St. Louis Fed The St. Louis Fed's model is the most conservative (least bullish), estimating 1.1% growth in Q2, and the first reading was 2.8%. However, the real-time economic models do not show recession. Cleveland Fed Inflation-Nowcast Cleveland FedCPI inflation is expected to be 3% next week and 2.7% next month. Core PCE inflation is expected to go from 2.6% last month to 2.7% this month and 2.9% next month. 2.7% annualizing month-over-month. Truflation Real-time inflation appears to stabilize at 1.5%, consistent with core PCE of 1%, 1% below the Fed's target. Implying 1.5% Fed funds would be appropriate right now. Atlanta FedThe Taylor rule says the economy is so strong that the Fed should hike once or twice more and hold rates around 5.8%. The Fed's current long-term model says to cut three times and hold rates around 4.25% to 4.5%. So what will the Fed likely do? CME GroupThe bond market is pricing in 88% (certainty) for four cuts this year and five by January 2025. Then, another cut will be made in March and April, and a final cut will be made in July for 2% of cuts (8) by July 2025. These real-time percentages change by the minute, as the bond market does. This is not a forecast. David RiceDavid RiceDavid Rice's Baseline and Rate of Change, or BaR grid, tracks 20 monthly reports collectively forecasting every recession in the last 30 years. The Weighted Mean of Coordinates was added to the BaR. The WMoC doubles the weight of nonfinancial corporate profits, unemployment claims, and the STLFSI. Over the past two years, these three indicators have remained strikingly positive, while others have moved near or below the baseline. This indicates that as profits stay high and financial stress stays low, a recession is unlikely despite the decline in other factors. The WMoC is being tested to see if it is a better recession indicator.\" - David Rice The WMOC is slightly above the historical baseline but getting worse month-over-month. The leading indicator average (green dot) shows when the WMOC will likely go in the coming months. David RiceThe economy has been slowing rapidly in the last three months, as seen by the 3.7% decline in the WMOC. David RiceThe economy may continue to weaken, and the risk of recession isn't zero, but I agree with JPMorgan, Goldman, and Moody's that we're likely not in recession right now.  Goldman 25% recession risk. Moody's 33% JPMorgan 35%  David Rice Weekly Indicators: Jobless Claims Turn Neutral   NDD  NDD   NDDSummary  With the extreme flattening of the 2 vs. 10 year Treasury yield, that spread is neutral. Additionally, real money supply has continued to get “less bad.” On the other hand, mortgage applications have worsened somewhat. The remaining indicators have slowly changed back to either neutral or positive. Both the short leading indicators and the coincident indicators have generally been improving over the past few months, albeit with some noise. The decline in the price of gas has been, as usual, well received. The coincident indicators, driven by strong consumer spending and more time inflation, are very positive. The one important deterioration has been jobless claims in the past several weeks.\" - NDD  YChartsThe financial stress index consensus tracks over 120 weekly financial indexes in every part of the economic system. St. Louis Fed Financial Stress Index (STLFSI) The STLFSI tracks 18 weekly data series to measure financial stress:   Interest Rate Spreads: Includes various spreads such as the TED, commercial paper, and corporate bond spreads.  Yield Spreads: Includes the 10-year Treasury minus the 3-month Treasury spread.  Volatility Measures: Includes the VIX (equity market volatility) and the Merrill Lynch Bond Market Volatility Index.  Other Indicators include the S&P 500 Financials Index and the Chicago Board Options Exchange (CBOE) Market Volatility Index.  Kansas City Fed Financial Stress Index (KCFSI) The KCFSI uses 11 monthly data series:   Yield Spreads: This includes the 2-year Treasury minus 3-month Treasury spread and the 10-year Treasury minus 3-month Treasury spread.  Interest Rate Spreads: Includes the TED spread and commercial paper spread.  Volatility Measures: Includes the VIX and the high-yield bond spread.  Other Indicators include the S&P 500 Financials Index and the Kansas City Financial Stress Index.  Chicago Fed National Financial Conditions Index (NFCI) The NFCI tracks more than 100 indicators categorized into three main subcategories:   Risk: Includes measures of volatility, credit spreads, and leverage.  Credit: Includes measures of borrowing costs, credit availability, and credit conditions.  Leverage: Includes debt levels and leverage ratios in the financial sector.  Since the Fed began tracking this back in 1971, there has never been a recession in which all of the indexes and subindexes have been negative, indicating below-average financial stress. In other words, combining all these financial stress indexes gives us the best statistical look at financial stress (money in the economy). Without the above financial stress, there can't be a recession, though each industry and your personal experiences will vary. Individual companies will fire people, you'll see headlines, and your neighbor might lose his/her job. You might not be able to pay some bills right now, but these are anecdotes. The plural of anecdote is anecdote, not data.\" -Brian Dunning In other words, don't let your personal experiences or scary headlines on social media, where algos might be locking you into a \"Doom loop,\" into thinking the economy is worse than it is. Especially in a political season where many people's views of the economy might be skewed by their political affiliation and what candidates might say when describing it. Bottom Line: Slowing Growth Is Not a Recession For now, the overall data indicates we're not likely to be in recession, and the slowing in economic growth that was expected is happening. Thus, the \"hard landing\" scenario, in which GDP growth goes negative, layoffs soar, and the S&P falls into a bear market, is not the most likely outcome. But the risks are rising, so that brings us to the question... What are the most effective ways to hedge portfolios against recession? Here are how various hedging strategies have performed in every bear market since 1990.                 2022 Pandemic 2018 Bear Market 2011 Debt Ceiling Crisis Great Recession Tech Crash   Portfolio/Strategy               US Stocks -27.5% -35.3% -20.2% -21.6% -55.2% -49.2%   Global Stocks (60% US, 40% Foreign) -27.3% -34.2% -13.9% -20.4% -53.1% -42.0%   60-40 -21.1% -21.7% -11.6% -10.8% -29.9% -18.6%   Hedging Strategies                KMLM 47.7% 13.6% 0.3% 2.8% 58.5% 69.0%   Long Bonds (ZROZ) -38.1% 18.2% 5.6% 66.4% 41.6% 183.3%   KMLM/ZROZ (50% MLM trend, 50% long bonds) 4.8% 15.9% 2.9% 34.6% 50.0% 126.2%   33% RSBT, 67% KMLM (33% bonds, 33% trend, 67% MLM trend) 35.1% 11.2% 0.4% 3.9% 47.1% 68.7%   KMLM/DBMF (50% trend, 50% MLM trend) 39.6% 4.4% -0.3% 0.0% 36.0% 49.2%   RSBT/KMLM (50% bonds, 50% trend, 50% MLM trend) 28.8% 10.0% 0.5% 4.5% 41.5% 68.9%   DBMF/KMLM/ZROZ 13.7% 9.0% 1.6% 22.1% 37.9% 93.9%   RSBT/DBMF/KMLM (33% bonds, 33% trend, 33% managed futures, 33% MLM trend) 29.7% 5.1% 0.0% 2.1% 32.1% 55.7%   DBMF/ZROZ -3.3% 6.7% 2.3% 31.8% 27.5% 106.4%   25% RSBT, 25% RSBY, 50% KMLM (25% Carry, 25% Trend, 50% Bonds, 50% MLM Trend) 27.5% 6.1% 2.3% 5.1% 37.8% 64.4%   KMLM, RSBY, ZROZ (33% MLM trend, 33% bonds, 33% Carry, 33% Long Bonds) 4.8% 7.5% 4.6% 26.0% 36.6% 101.1%   RSBY/KMLM (50% bonds, 50% carry, 50% MLM trend) 26.2% 2.2% 4.1% 5.7% 34.1% 60.0%   RSBT/DBMF/KMLM/ZROZ (25% bonds, 25% trend, 25% managed futures, 25% MLM trend, 25% and bonds) 12.7% 8.3% 1.4% 18.2% 34.5% 87.6%   SG Trend Index 35.6% -2.4% -3.2% -5.4% 30.5% 53.4%   RSBT/RSBY/DBMF/KMLM/ZROZ (40% bonds, 20% trend, 20% carry, 20% managed futures, 20% MLM trend, 20% long bonds) 11.1% 4.8% 2.7% 16.3% 29.5% 80.3%   RSBT/RSBY/KMLM (50% bonds, 25% trend, 25% carry, 25% MLM trend) 20.7% 3.6% 2.9% 5.9% 30.9% 62.9%   DBMF/KMLM/ZROZ/AGG/Carry 9.2% 3.6% 2.6% 15.0% 24.7% 66.5%   RSBT, RSBY, KMLM, ZROZ, Gold (40% bonds, 20% trend, 20% carry, 20% MLM trend, 20% gold) 3.3% 4.8% 3.9% 18.4% 32.4% 77.0%   RSBT/RSBY/KMLM/ZROZ (50% bonds, 25% trend, 25% carry, 25% MLM trend, 25% long bonds) 4.8% 5.8% 2.9% 16.8% 26.8% 74.4%   RSBT, RSBY, DBMF, KMLM, ZROZ, Gold, Market Neutral (28% bonds, 14% trend, 14% carry, 14% MLM trend, 14% managed futures, 14% long bonds, 14% gold, 14% market neutral) 5.8% 1.6% 2.3% 12.0% 22.4% 61.8%   RSBY (50% bonds, 50% carry) 4.7% -9.2% 7.9% 8.7% 9.7% 51.0%   RSBT (50% bonds, 50% trend) 9.8% 6.4% 0.6% 6.2% 24.4% 68.7%   Gold -7.8% -4.9% 5.0% 7.8% 27.7% 13.2%   DBMF (managed futures) 31.5% -4.8% -1.0% -2.8% 13.5% 29.4%   Resolve Carry Strategy 16.14% -7.89% 6.56% 3.41% 1.76% 23.76%   Bonds (AGG) -11.47% -1.34% 1.31% 5.3% 7.99% 27.20%   Cash (BIL) 0.6% 0.3% 0.5% 0.0% 2.6% 11.7%   Bloomberg GSAM Carry Index -0.2% -2.7% -0.1% NA 5.5% 66.1%   Market Neutral -7.1% -8.1% -2.2% -5.1% -18.5% 18.0%   Average 8.8% 0.5% 0.4% 8.8% 20.3% 56.6%   Click to enlarge  (Source: Dividend Kings Portfolio Optimizer Tool) Summary              Average Bear Market Median Bear Market Beta Historical Returns   Portfolio/Strategy           US Stocks -20.4% -28.8% -32.3% -27.5%   Global Stocks (60% US, 40% Foreign) -19.5% -19.4% -28.7% -27.3%   60-40 -8.7% -13.4% -17.0% -18.6%   Hedging Strategies           KMLM 32.0% 30.7% -0.82 9.1%   Long Bonds (ZROZ) 46.2% 29.9% -0.51 4.5%   KMLM/ZROZ (50% MLM trend, 50% long bonds) 39.1% 25.3% -0.68 6.8%   33% RSBT, 67% KMLM (33% bonds, 33% trend, 67% MLM trend) 27.7% 23.1% -0.82 8.6%   KMLM/DBMF (50% trend, 50% MLM trend) 21.5% 20.2% -0.70 7.1%   RSBT/KMLM (50% bonds, 50% trend, 50% MLM trend) 25.7% 19.4% -0.81 8.4%   DBMF/KMLM/ZROZ 29.7% 17.9% -0.69 6.2%   RSBT/DBMF/KMLM (33% bonds, 33% trend, 33% managed futures, 33% MLM trend) 20.8% 17.4% -0.75 7.6%   DBMF/ZROZ 28.6% 17.1% -0.56 4.8%   25% RSBT, 25% RSBY, 50% KMLM (25% Carry, 25% Trend, 50% Bonds, 50% MLM Trend) 23.9% 16.8% -0.78 9.6%   KMLM, RSBY, ZROZ (33% MLM trend, 33% bonds, 33% Carry, 33% Long Bonds) 30.1% 16.7% -0.65 8.7%   RSBY/KMLM (50% bonds, 50% carry, 50% MLM trend) 22.1% 16.0% -0.74 10.9%   RSBT/DBMF/KMLM/ZROZ (25% bonds, 25% trend, 25% managed futures, 25% MLM trend, 25% long bonds) 27.1% 15.5% -0.70 6.6%   SG Trend Index 18.1% 14.0% -0.68 6.4%   RSBT/RSBY/DBMF/KMLM/ZROZ (40% bonds, 20% trend, 20% carry, 20% managed futures, 20% MLM trend, 20% long bonds) 24.1% 13.7% -0.67 7.8%   RSBT/RSBY/KMLM (50% bonds, 25% trend, 25% carry, 25% MLM trend) 21.1% 13.3% -0.74 9.8%   DBMF/KMLM/ZROZ/AGG/Carry 20.3% 12.1% -0.66 6.3%   RSBT, RSBY, KMLM, ZROZ, Gold (40% bonds, 20% trend, 20% carry, 20% MLM trend, 20% gold) 23.3% 11.6% -0.69 7.8%   RSBT/RSBY/KMLM/ZROZ (50% bonds, 25% trend, 25% carry, 25% MLM trend, 25% long bonds) 21.9% 11.3% -0.66 7.3%   RSBT, RSBY, DBMF, KMLM, ZROZ, Gold, Market Neutral (28% bonds, 14% trend, 14% carry, 14% MLM trend, 14% managed futures, 14% long bonds, 14% gold, 14% market neutral) 17.7% 8.9% -0.66 6.9%   RSBY (50% bonds, 50% carry) 12.1% 8.3% -0.45 12.6%   RSBT (50% bonds, 50% trend) 19.3% 8.1% -0.71 7.6%   Gold 6.8% 6.4% -0.67 5.3%   DBMF (managed futures) 11.0% 6.3% -0.43 5.1%   Resolve Carry Strategy 7.3% 5.0% -0.14 8.6%   Bonds (AGG) 4.8% 3.3% -0.58 4.1%   Cash (BIL) 2.6% 0.6% -0.63 3.7%   Bloomberg GSAM Carry Index 13.7% -0.1% -0.51 3.8%   Market Neutral -3.8% -6.1% -0.03 4.4%   Average 17.1% 10.0% -0.59 4.1%   Click to enlarge (Source: Dividend Kings Portfolio Optimizer Tool) Notice a few things about hedging strategies. In a bear market, they're negatively correlated to the S&P, which most assets can't do. JPMorgan Asset Management Corporate bonds or alternatives like private credit are not hedges. They might be less correlated to the S&P than pure stocks, but replacing negatively correlated hedging assets with these non-stock assets is poor risk management.  Replacing higher-volatility stocks with lower-volatility private credit or high-yield bonds reduces your portfolio volatility. Replacing negative hedges with positively correlated lower-volatility alternatives to stocks increases portfolio volatility.    Dividend Kings S&P Valuation Tool Various asset allocations using the most powerful hedging strategy (managed futures) have performed well in the eight bear markets of the last 39 years. A six food man can drown crossing a river that's five feed deep on average.\" - Howard Marks Any given downturn, including pullbacks and dips, will vary, and no hedging strategies always work. Managed Futures And Yield Futures: What I Use In My Portfolio SharesightI use KMLM and CTA as my core hedging bucket, and yield futures (Carry) are slightly augmenting. This is because KMLM and CTA (CTA) don't use stock futures. Thus, they offer superior low or negative correlation to stocks in a sudden reversal that can wreck hedge funds (HFND). What You Need To Know About Managed Futures  KMLM: 5 Reasons You Might Want To Buy This 8.2% Yielding ETF CTA: 5 Reasons I Added This 7.6% Yielding ETF To My Portfolio  Managed Futures In Every Negative Monthly Return Month Since April 2022 Dividend Kings S&P Valuation Tool If you think any managed futures ETF will work 100% of the time stocks fall, you will be disappointed. However, combining CTA and KMLM appears to improve KMLM (the gold standard managed futures hedging choice) by a median of 0.5% higher positive returns in the average monthly decline for stocks. Why Not Just Use CTA As The Only Hedge?  YChartsYChartsEvery downturn will be different in terms of which managed future fund performs the best. Why? Resolve Asset Management (Return Stacking) Trend Strategy Seeks 85% correlation with Soc Gen Trend Index (replication strategy) Resolve Asset Management Resolve Asset Management Resolve Asset Management The Return Stacked managed futures strategy quickly adapts, going from 100% long stocks (7 global indexes) to 50% long stocks within two weeks.  The risk cap Resolve uses is 100% long for any future contract. Depending on the trend, some managed futures managers go as much as 800% long or short.  What About Their Carry Algo? Carry is the income you'd receive for holding an asset for one year if the price doesn't change. So if stocks pay 3% dividends and prices remain flat for one year, your stock carry is 3%. Resolve uses a relative value carry trade strategy. If the current yield for assets is above their historical average, they go long. If the current yield is below average, they go short. Carry = value and trend following managed futures = growth. Yield + growth is the optimal long-term income growth investing strategy. Corey Hoffstein (who manages the bond side of Return Stacked Funds) personally invests 50% carry + 50% trend in his hedging bucket. Resolve Asset Management Resolve's carry strategy is short stocks because global stock dividend yields are historically low. Remember, they use a -100% or +100% risk cap on positions. At recent highs, they were -70% short stocks, and as stocks sold off, they became steadily less short stocks. Resolve Asset Management When the Yen was weakest, Resolve's Carry strategy was 40% short of the Yen. As the Yen carry trade unwound violently, it quickly adapted and became less short the Yen. Changes in volatility and yield trigger the weighting changes for this carry strategy. Resolve Asset Management  DBMF Trend Strategy Seeks 85% correlation with Soc Gen CTA Index (replication strategy) DBMF WatchDBMF uses fewer futures contracts to replicate the Soc Gen CTA index with a two-month lookback. It's 100% based on a regression analysis (bottom-up) approach. DBMF is still a 32% long stock because it is pivoting to new trends more slowly. It's also still short on bonds and heavily short on the Yen. KMLM Trend Strategy Tracks the Mount Lucas Index (pure trend) KMLM adapts much more quickly. KraneShares KraneSharesKraneShares KMLM rebalances its asset allocation at the start of each month. Daily trends adjust whether an asset is long or short and by how much. KraneShares You can see how KMLM adapts over time. After a long period of being short bonds, it is now a long bond. DBMF WatchA month ago, KMLM was short bonds, and now it's 16%-plus long bonds, a 165% swing. A month ago, KMLM was deeply long oil; now it's short oil. In the past week, KMLM has swung from -2% short, long bonds to 16%-plus long bonds, showing how quickly its daily adjusting algo works. Simplify Strategy  Proprietary algo There are no stocks or currencies, just commodities and bonds Trend + carry with risk management strategy    Simplify Top 10 Holdings: 69% Of Volatility Simplify CTA's proprietary algo is short commodities and long gold and bonds, just not as much as KMLM. How do I know when to sell my hedges and rebalance back into stocks? YCharts We all love how hedges can soar in times of extreme market stress... but we hate how they can crash very quickly, sometimes at the best times and sometimes when stocks are still falling. In the Great Recession, long bonds peaked in December and then fell, and stocks still fell. YChartsIn the 2022 bear market, managed futures were up as much as 47% (KMLM) at the market lows. Crisis alpha par excellence from the best hedging strategy since the 1970s. But guess what happened next? YChartsAfter the market bottomed, stocks and bonds ripped higher, and the trends protecting managed futures suddenly reversed violently. KMLM was up 47% year-to-date through the market bottom. And then within seven weeks, it fell 16%. Annual rebalancing is optimal, statistically speaking. VanguardHowever, this is based on studies examining 60-40 portfolios using the S&P and bonds. Annual rebalancing is probably a decent strategy if you use other portfolio designs, but I use trailing stops when rebalancing hedges back into stocks. Trailing Stops: A Beginner's Guide A trailing stop is a type of order used in the stock market to help investors manage risk and lock in profits. It's a dynamic version of a stop-loss order, which adjusts itself as the price of a stock moves favorably. Here’s a simplified breakdown of trailing stops and how to use them. What Is a Trailing Stop? A trailing stop order is designed to follow the price of a stock as it moves in a favorable direction. Unlike a traditional stop-loss order set at a fixed price, a trailing stop moves with the stock's price. If the stock price increases, the trailing stop price increases, maintaining a distance below the current market price for long positions or above the market price for short positions. How Does a Trailing Stop Work? Setting the Trailing Amount: You specify a trailing amount, which can be either a fixed dollar amount or a percentage of the stock's price. Following the Price: As the stock price moves in your favor, the trailing stop price adjusts accordingly. For example, if you set a trailing stop 5% below the current price, and the stock price rises, the trailing stop price will also rise, maintaining that 5% distance. Triggering the Order: If the stock price reverses direction and hits the trailing stop price, a market order is triggered, and the stock is sold at the best available price. Example Suppose you buy a stock at $100 and set a trailing stop at 10%. Initially, your stop price is $90. If the stock price rises to $120, the trailing stop price adjusts to $108 (10% below $120). If the stock price falls to $108, the trailing stop triggers a market order to sell the stock. Benefits of Trailing Stops   Risk Management: Trailing stops help limit potential losses by automatically selling the stock if its price drops by a specified amount.  Profit Protection: As the stock price rises, the trailing stop locks in profits by adjusting the stop price upward.  Automation: Once set, trailing stops adjust automatically, reducing the need for constant monitoring.  When to Use Trailing Stops   Volatile Markets: Trailing stops are helpful in volatile markets where stock prices change rapidly.  Long-term investments benefit long-term investors who want to protect gains without constantly monitoring their investments.  Exit Strategy: Trailing stops can be part of an exit strategy to ensure that profits are secured as the stock price rises.  Risks and Considerations   Market Gaps: Trailing stops may not protect against significant price gaps between trading sessions.  Execution Price: The final execution price may differ from the trailing stop price due to market fluctuations.  Short-Term Fluctuations: Short-term price dips can trigger a trailing stop, potentially selling the stock prematurely.  Types of Trailing Stops   Trailing Stop in Dollars: Set a fixed dollar amount below the market price.  Trailing Stop in Percentages: Set a fixed percentage below the market price.  How I Use Trailing Stops Specifically The key to any prudent strategy is to be OK with not being perfect. Don't let perfect be the enemy of the good.       Metric US Stocks (VOO)   Yield 1.25%   2022 Bear Market (1/4/22-10/12/22 -27.5%   Pandemic (2/19/20-3/23/20) -35.3%   2018 Bear Market (9/21/2018-12/25/2018) -20.2%   2011 Debt Ceiling Crisis (4/29/2011-10/3/2011) -21.6%   Great Recession (10/8/2007-3/2/2009) -55.2%   Tech Crash (3/27/2000-10/7/2002) -49.2%   1990 Bear Market (7/17/1990-10/11/1990) -20.4%   1987 Black Monday Period 10/13/87-12/4/87 -28.8%   Average Bear Market -32.8%   Median Bear Market -27.5%   Click to enlarge (Source: Dividend Kings Portfolio Optimization tool) Regret minimization means I would rather be too early to rebalance out of excess hedges and into blue-chip bargains. Better early than late because historically, the early returns in a new bull market are the strongest.   Charlie Bilello We recently hit a VIX of 65, the third highest ever recorded outside of the Pandemic and Great Recession. Notice how the returns in the first year after peak VIX (peak market panic and fear) are 39%, almost 4X higher than the market's historical 11% returns in any given year.  Average 1st year gain: 39% Average 2nd year gain: 21% Average 3rd year gain: 3% Average 4th year gain: 22% Average 5th year gain: 44%  So I personally have the following strategy for rebalancing hedges.  At 20% bear market signal, set trailing stops on hedges. Excess hedges only. 5% trailing stop. If stocks keep falling and managed futures keep rising, adjust stops each week to return to target allocation if the stop triggers.  For example, my target allocation is 50% managed futures. At the bottom of the market in October 2022, that 50% allocation would have risen to 83% managed futures.  When your growth stocks have crashed and your hedges have soared, you feel like a genius. But what happens when the market rips higher, and your hedges fall 16% in a few weeks? Portfolio Visualizer Imagine owning 12% NVDA and AMZN, hyper-volatile growth stocks that got crushed in 2022. And yet, when the market is at its bottom, you're down 5X less. Brilliant! Until the market rips higher and you fall 5%. That's what happens without dynamic rebalancing. A trailing stop on KMLM when the market hit -20% would have triggered 11% above KMLM's bottom, netting significant profits that could be rebalanced into blue chips. The same approach could be used for bonds in recessionary bear markets, where they shine. Long bonds in 2008 peaked in December. They then fell in the final days of the Great Recession before being crushed when the market bottomed. YChartsThe point is that you don't want to be overweight hedges when you don't need them. In a recession, hedges naturally become overweight because they rise while stocks fall. But stocks always recover eventually, and that's why you need to rebalance, either on a fixed schedule or dynamically. A rules-based approach to rebalancing, whatever it is, is crucial to avoiding emotional frustration and maximizing long-term portfolio income, which is the goal of most people reading this. For example, my 50% target managed futures would have risen to 80%, and then when they pulled back in October, as bonds and stocks ripped higher and trends reversed, that would have been cut back to 50% via trailing stop. OK But... I know what you're thinking. \"This is great in theory, but what happens in real life? What if the market has a bear market rally!?\" That's a great point. Bear markets are usually not straight down, followed by V-shaped recoveries. This is why I set trailing stops on excess hedges only. If stocks crash and hedges go straight up, the trailing stop is trailing 5% behind the hedge's record high. If the hedges pull back 5%, it could mean that stocks have bottomed. But not necessarily. But that's OK because the allocation resets back to the target allocation, 50%. YCharts Note how KMLM peaked initially in late May and then pulled back about 20%. That would have triggered my trailing stops... but stocks weren't done falling! So if I were to set trailing stops on my hedges for 100% of the position, try to time the market, and be \"100% stocks, and 100% managed futures depending on what's going up,\" that would be speculative and potentially disastrous. Imagine being 100% stocks right before a bear market begins. Or 100% hedges right before hedges crash as market trends reverse. But what if you only rebalance back to target allocation? KMLM/CTA soars to 75% of the portfolio, and then you trim back to 50% when the hedges pull back 5% to rebalance and put the money into blue chips. The blue chips go up initially, and the hedges fall. You feel like you nailed the bottom. But the market then reverses because the Fed isn't done hiking. So in October, the 50% hedges grow to 65%, not quite as much as you'd have without the trailing stops, but still highly protective. The second time, hedges soared and then pulled back 5%; the October low was the market's final bottom. Daily Shot In the tech crash, there were seven bear market rallies in which stocks rocketed higher, and investors thought, \"It's over, that was the bottom.\" In this bear market, dynamic rebalancing would have seen my portfolio rebalancing seven times between the annual rebalancing I usually do. But I return to the target allocation optimized for my family's needs each time. That's the key to dynamic rebalancing a portfolio. You can't predict how many bear market rallies will be ahead of time. You can't nail the bottom or the tops in anything you own. But as long as you have a rules-based approach to rebalancing (even annually on a schedule), you'll likely capture the rebalancing premium from diversification. Resolve Asset Management Resolve Asset Management Rebalancing between non-correlated assets is where the \"only free lunch\" on Wall Street comes from. Bottom Line: Recessions And Bear Markets Are Something You Can Harness to Your Benefit  Recessions and bear markets are like hurricanes: Inevitable. But, like hurricanes, they're a blessing in disguise. When a hurricane wipes out a city, you can rebuild it better than before. You can learn from disaster to improve your portfolio's design and asset allocation, optimizing for your emotional and financial needs. Each bear market is slightly different and teaches us about our risk profile. While the core of sound asset allocation changes gradually with new data, your risk profile is constantly in flux.  However, this report showcases some important data that can hopefully help you better ask, \"How can I optimize my portfolio for my personal and financial needs?\"   Perplexity","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2458605597"}