One big question today is whether it is too late to hedge portfolio risk. Investors are dealing with three challenges that are impacting their portfolios:
1. Extreme equity volatility.
2. The popular 60/40 portfolio did not diversify risk as expected.
3. Steeply rising rates and an inverted yield curve.
Perhaps the damage is done and the best strategy now is to simply stay invested. Or should investors consider alternatives? Reading around the investment research inside RFPnetworks there is an emerging consensus that the recession will be shallow but protracted. With a potential turning point centred around mid 2023. But what if this is not true. What if the terminal rate required to bring inflation back under control is higher than what the FED now expects. The FED has already revised this upwards since September 2022. Even more concerning for investors is the risk that rate cuts don't come in 2023 at all!
The efficacy of unconstrained, benchmark agnostic or at the extreme, an anti-beta hiding strategy may be needed now. At least, this topic seems to be getting a lot of traction in our research feeds.
