Amidst a recent escalation in geopolitical tensions in the Middle East and following a year of positive returns across most asset classes, investors are increasingly looking for safe havens to hedge against downside and upside risks.
Chiara Mauri, senior fund analyst and portfolio manager at the Italian asset manager Fideuram Investimenti SGR, talks to Eugenia Jiménez about the hedges she uses against risks such as market uncertainty and increased volatility.
Mauri says: "2019 ended somewhat better than expected and fears of recession in the US were not fulfilled.
Energy funds or Exchange-traded commodities (ETCs) including oil can be a quick and efficient way to protect a portfolio."
"A loose monetary policies, the hope for easing political tensions (both in the US-China trade war and the US-Iran conflict) and, most of all, the lack of alternatives to risky assets, are supporting equities into the start of the year.
"However we shouldn't forget that 2019 saw the biggest re-rating for equities in a decade, driven completely by multiple expansion with very poor contribution from earnings; valuations are very stretched and political uncertainty could resurface as a concern in a minute."
These are some of the reasons which, according to Mauri, lead her as a fund selector to look for enough instruments to hedge clients' portfolios in the case they require protection.
Energy funds or Exchange-traded commodities (ETCs) like oil can be a quick and efficient way to protect a portfolio if geopolitical tensions in the Middle East escalate and there occurs a supply shock, the Italian selector explains.
She adds: "We continue to offer government bonds as a useful hedge against growth disappointment and, in particular, this month we have added some US Treasury Inflation-Protected Securities (TIPS) Funds as they offer some protection against higher volatility since the break evens are quite depressed.
"We also keep selecting gold-related instruments and cash funds in Yen and US Dollar that could be considered as safe heavens even if US dollar positive carry characteristics are to some extent recently offset by its expensive valuation."