Life Insurance companies are faced with tough decisions when it comes to protecting their tail-risk in light of future market turbulence. As the US market enters its 10th straight year of positive returns, investors are becoming more cautious and keen on protecting their assets against a possible market correction in the near future. It is common to observe multiple asset classes being impacted in times of market anxiety and correlations to increase amongst these investment categories. Institutional investors that are increasingly looking towards understanding the impact of such hedging programs, however, are somewhat unaware of the complexity involved when analyzing and implementing these tools.
This article discusses 6 key steps in analyzing and comparing different hedging programs. The six step process is a comprehensive way of analyzing all aspects of different hedging strategies, and steps 1 – 4 are usually part of an iterative process where stakeholders gain insights continuously. This analysis can be done on a historical basis or on a forward looking basis. In order to gain meaningful insights, the forward looking analysis should incorporate all aspects of the balance sheet, regulatory frameworks, and capture the dynamics of markets in a consistent manner. More importantly the tools used for the analysis should provide the user with a multi-year comparison possibility. If you are considering opting for a hedging program, be aware of the above mentioned steps required to decide on a suitable strategy for your organization.
01 June 2023
Why stocks could be in the red this year and what to do about it
It hasn’t been since 2000 and 2001 that U.S. stock markets lost money in two consecutive years, but it’s something that could potentially happen again this year. Ortec’s modelling is pointing to negative equity returns over the next 12 months as the most likely market scenario. Pension funds with tactical or dynamic allocations at their disposal may want to temper their risk and consider fixed income instead.
Ortec Finance discusses with Responsible Investor on why high-quality climate data is essential for investors to map progress toward emission reduction goals and enable a successful transition to net-zero.