As a renewed bout of trade worries roils global stocks, a growing number of investors are betting that markets will stay erratic. In a sign that investors are shifting how they react to markets, some are abandoning "buy and hold" postures and pouring money into bets that would take the edge off a sharp drop in markets or profit from higher volatility. Others are trading more frequently to take advantage of increased price swings, backing away from assets that may be vulnerable to turbulence or warning clients about the possibility of big declines in their portfolios. These types of approaches were largely unpopular during the market’s decade-long bull run. Investors were happy to hang onto shares and tended to avoid strategies that cut into their profits, such as keeping a large cash allocation or maintaining expensive hedges. Now, many are convinced that an aging bull market, persistent uncertainties over global trade and growth and the increasing dominance of machine trading will lead to more frequent eruptions of volatility. They point to selloffs that gripped markets at the beginning and end of 2018, as well as the swings of recent weeks. “This is unlike any other time in the markets over the last several years,” said Don Dale, a founder at Equity Risk Control Group overseeing options strategies. Investors have shown interest in products that tend to profit when volatility rises. For example, assets held in those types of exchange-traded products hit a record high of $3.1 billion in May, according to FactSet data. People piled into bets that volatility would fall in early 2018, trades that backfired spectacularly when turbulence hit. As markets have swung, investors have also turned to the relative safety of government bonds. They have sent the yields on 10-year Treasurys, which fall as bond prices rise, near their lowest levels of the year. In another sign that traders are wagering on volatility, they’ve turned to options on the Cboe Volatility Index, or VIX, recently sending volume to the highest since February 2018. Are you wagering that volatility will continue? Let the authors know your thoughts at ira.iosebashvili@wsj.com and gunjan.banerji@wsj.com. Emailed comments may be edited before publication in future newsletters, and please make sure to include your name and location. |