The difficulty of hedging, the risks of option writing, and frozen websites.
This column was advertised as part two of a three-part series, on the merits (or not) of leveraging. That topic will wait. Big stock-market losses usually offer investment lessons, and Monday’s plummet was no exception. It's best to address these issues while the memory is fresh.
Diversify the Hedge!
Managed-futures funds protected beautifully against the 2008 financial crash. Not that retail investors benefited. With one exception, the managed-futures funds that existed at the time were hedge funds, meaning that they weren’t available for the rank-and-file. Too bad. Between late 2007 and early 2009, from the stock market’s peak to trough, the average managed-futures hedge fund gained 12% while stocks dropped 41%.
John Rekenthaler does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.