If everything crashes, a lot of your holdings will also go down.
You can still profit, and you should always hedge.
Inverse ETFs are the move here.
It’s Pretty Important, No?
Institutions and family offices almost always have some kind of hedging mechanism in place.
We should probably follow suit. Those places aren’t big because they’re stupid.
And as contrarian investors, we hold assets that do well in a poor economy over time.
“Over time” being the operative phrase.
We can easily go down with the ship just as easily if there is a sharp and sustained fall in global markets.
The possibility is less than a 60/40 investment portfolio would be, but it does exist.
To prevent an unnecessary gut-punch to your account, you can make it more of an arm-punch by having some type of insurance against a falling market.
This is one of several places an inverse ETF can come into play.
We Already Know This
We have covered inverse ETFs in the past, but it’s been awhile. See the podcast episode below.
We covered the basic shorting ETFs for the S&P 500, DOW, and Nasdaq.
There are many more however.
Some are for single stocks (You can short Microsoft for example – MSFD), while some others are specifically for different sectors, a handful of them for bonds, etc.
As we have mentioned before, as long term buy and hold investors, we avoid leveraged 2X and 3X ETFs.
If The US Holds Strong….
There is a prevailing thought that even if we do hit a worldwide recession, thanks to deglobalization, it is going to hit the United States less hard than most other countries.
This is due to the superior geography of the US, but also its tech and industrial wealth between itself and its bordered trading partners, Canada and Mexico, thanks to NAFTA.
The majority of geopolitical experts I follow agree on this idea, as does billionaire investor Marin Katusa, highlighted in his book “The Rise of America”, which I have referenced in the past.
Maybe the US doesn’t feel much pain at all from this?
Improbable IMO, but there is a way to short much of the world, and leave the entire Western Hemisphere out of it.
Allow me to present to you, the ProShares Short MSCI EAFE ETP, ticker symbol EFZ
The key acronym in there is ‘EAFE’ – Europe, Austrailasia, and Far East
ETF nerds know the term EAFE very well, and it’s almost always used for long-side diversification outside of the US market and sphere.
We already know some of the most vulnerable areas to deglobalization and major demographic shifts into retirements are the most prevalent in places like China, Japan, and just about all of Europe.
We also know the coming scarcity of natural resources due to war, deglobalization, and the end of American protectionism in our oceans is also going to hit these areas quite violently.
Maybe you wouldn’t consider something this comprehensive because you’re bullish on India and SE Asia long-term for example. And that’s fine. But ask yourself — are those areas well-positioned to take a huge financial hit right now? This is important.
Perhaps EFZ is simply a good way to hone in on the areas most likely to be affected the most heavily by a crash, whilst leaving the places least likely to be affected out of it.
Just a thought.
Conclusion
Nothing I say is financial advice. Do your own due diligence always. Your results are yours and yours alone.
— VP