Hedging using ETFs helps investors find safe harbour in troubled times

Our interview this week is with Amy Wu Silverman, Head of Derivatives Strategy, RBC Capital Markets, who reports that her clients like to use the SDEX and the TDEX to track the costs of a drawdown on the market. Her clients are using ETFs to hedge, using ETFs such as the broad-based SPY and QQQ, "but we have also seen a lot of interest in the IWM and, sector wise, the XRT which shows how the consumer will react," she says.

"The most active fixed income ETFs such as HYG and TLT is where we see options are being used because of the ongoing tumultuousness in the rate space. A lot of people are using HYG puts as a longer-term recession hedge with concern for the possibility of a recession and how that would impact on the underlying companies."

Her experience is backed up by latest research from Cerulli Associates which revealed that most institutional asset owners currently are using passive investments or have leveraged passive investments in the past, however, they remain split on whether active or passive management offers the best risk/return profile for public market exposure.

For those that prefer passive strategies, cost is often a reason why, with 25 per cent saying they invest in active only in certain asset classes because of their higher cost. Asset owners tell Cerulli they have sought out passive in public equity markets to minimise their risk exposures in that portion of the portfolio and to maximize their risk budgets for higher-cost alternative strategies.

Across all institutional channels, the majority (75 per cent) of asset owners report using passive equity ETFs, with that percentage exceeding 90 per cent for public and corporate defined benefit plans and nearly 90 per cent for endowments and Taft-Hartley plans (89 per cent). Looking ahead, nearly 40 per cent of asset owners tell Cerulli they plan to increase their use of the ETF vehicle, the highest percentage of any vehicle in Cerulli’s survey.

We are very pleased to continue our celebration of our European awards winners this week, with HANetf explaining what lies behind their wins in this year’s awards.

We also have our monthly digital update with CoinDesk’s Joshua de Vos summarising crypto activity in April. De Vos writes that April marked a return to positive net inflows across digital asset investment products for the first time since January, with USD3.45 billion entering the market. This reversed March’s USD1.45 billion in outflows, according to data from Trackinsight. The rebound came amid improving sentiment, stabilising macro conditions, and continued institutional appetite for crypto exposure, de Vos writes.

I will be chairing some of the ETF panels at IMPower Fund Forum in June. For a 10 per cent discount to attend, use this link and code: FKN3972ETFX. I hope to see you there.

Beverly Chandler, Managing Editor

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