Investment

Chart of the Month – Sell in May and go away? or Hedge a quarter and sleep better?

by Sébastien Poiret

Sell in May and go away? or Hedge a quarter and sleep better?

Source: Bloomberg

It was an extraordinary time to hedge a portfolio (or take profit) in November 2017 when the ratio S&P 500 PE/VIX reached 1.80 and was close to 3 standard deviation away from its mean (refer to our November 2017 Chart of the Month).

It was a great time to hedge a portfolio in September 2018 when this ratio reached 1.35 and was trading more than 1 standard deviation away from its mean.

After the very strong equity markets recovery this year, is it now also a good time to hedge a portfolio now that this ratio is back to 1.34 level?

Buying a put is always “too” expensive, unless your get the timing right with short maturities. It is all about finding the right balance between the underling, the maturity, the strike price and the volatility.

Whilst there are good reasons to continue to be bullish in the near term (central banks have changed policies to be more accommodative, earnings growth remain solid, global inflation is contained, trade negotiations are progressing…), we think now is a reasonable time to hedge a portfolio.

As an example: a 2% out-the-Money PUT on the S&P 500 Index with a December 20, 2019 maturity costs today about 3.3%. Therefore you can reduce your portfolio risk by 25% (or a Quarter) at a cost of 0.83%. In addition, to reduce the risk of timing, you could scale in over the next few weeks.

As the old adage says “Sell in May and Go Away”, we think it makes more sense to hedge a quarter and sleep better with an end-2019 horizon. It is a good way to remain invested with an insurance which cost is only the performance of the last 2 or 3 weeks.

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Antonio Mira
CHIEF FINANCIAL OFFICER, MEMBER OF THE EXECUTIVE COMMITTEE

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

Sébastien Poiret
DEPUTY HEAD OF WEALTH MANAGEMENT

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

Abir Oreibi
BOARD DIRECTOR

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up Alibaba.com’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Romain Pidoux, CAIA

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Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

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