Share prices are getting somewhat frothy in my view; particularly in the USA and the FTSE is up nearly 25% in the last twelve months, in large part driven by the devaluation of sterling following the Brexit vote. There are numerous potential Black Swan events that could upset the apple cart, whether it is North Korea, success for the far right in the forthcoming French elections, a major Trump faux pas etc.
I am therefore considering shorting the FTSE as a hedge against the value of my existing holdings. I do not know where it is heading short term but on a risk/reward basis it is I think more likely to go down than up and perhaps sooner than later.
I appreciate that this is not an appraisal of the merits of an individual stock that is perhaps more usual on Stockopedia discussion forums, but would nonetheless appreciate any thoughts fellow contributors may have on the subject.
Hi dfs12,
From what I've read, value & momentum strategies could provide you with a simple hedge technique you are looking for. Value and momentum strategies work best at different times during the economic cycle. I.e. when value lags, momentum soars, when momentum lags, value soars.
The Stockopedia article below might shed some light on the strategy. The second to last graph in the article shows a rolling 12 month value and momentum strategy in Japan and demonstrates that a VM strategy work in opposites, leading to a smooth, risk-adjusted return.
http://www.stockopedia.com/content/can-investors-use-value-and-momentum-strategies-in-japan-131306/
Combine this with a high dividend yield strategy (dividends payments help reduce the total loss) then you could stay in equities and just ride out the bumps with less volatility.
This is what I'm trying to achieve in my fantasy portfolio:
http://www.stockopedia.com/fantasy-funds/momentous-value-6803/
Hope this helps!
