Report
EUR 111.34
For Business Accounts Only
"OK.... Time to Call Security"
- US equity volatility is at its lowest level since before the financial crisis and the market is overvalued making it timely to buy cheap option protection. Buy 3 or 4-month puts on the S&P500 that are 4%-6% out-of-the-money for protection against a market correction. Rolling a 5% out-of-the-money 1-month put on the index will also perform well under a correction of this magnitude.
- Investors fearing a large correction (more than 20%) should rotate out of equities into bonds. Our Monte Carlo simulation suggests a strategy of rotating into bonds provides better risk-adjusted returns than rotating into Aussie cash in the face of such a large correction. However, option protection for a 17% correction by year-end is cheap and equivalent to the price of protection for a 4% correction in 4 months.
- Aussie cash typically out-performs US bonds in smaller corrections, but this won’t be likely if the equity correction is imminent, given the low level of domestic interest rates. Bond market volatility is also low at the moment and investors seeking protection from Fed policy could take advantage of low-cost protection on offer.
Provider
Macro Strategy Advisors Pty Ltd
About us:
- The business is a Proprietary Limited Australian company that is owned and fully operated by Shane Lee from a small office in Sydney’s CBD.
- Shane worked for 17 years in Sydney-based senior research roles (economist, equity strategist and bond strategist) in global and regional investment banks and a domestic commercial bank prior to starting Macro Strategy Advisors. These roles straddled the asset classes making him uniquely positioned to advise multi-asset investors. He worked for the Reserve Bank of Australia (RBA) for 3 years as a housing, commercial property and equity market analyst and a liquidity forecasting specialist. He worked as a structural engineer in Queensland for 10 years prior to his career at the RBA.
Aim of our business:
- To partner with our clients in their aim to maximise returns. We provide timely, independent and thought-provoking research on thematic macro issues that are impacting or could impact financial markets. We aim to produce research that prompts our clients to question their assumptions.
Services:
- A fortnightly research note.
- Regular presentations and data support delivered by understanding our clients interests and investment process.
- We also in work in confidence to investigate, analyse and report on issues at our clients direction. This work is done on a project-by-project basis.
- As an Australian based business, the main focus is analysing how domestic and global issues impact Australian investors. However, our global and domestic insights are also valued by our offshore clients.
Our Edge:
- Our low cost base relative to our competitors allows us to provide a quality product at a reasonable cost.
- We are fully independent and don’t support a banking function or any third party. We have no interests other than providing our clients with the best possible research.
- Our focus is not point forecasting, but providing rigorous analysis and insight. We don’t routinely focus on the top or bottom 10% of likely outcomes to create a headline.
- Shane’s background in engineering has provided clients with unique insights into global infrastructure and domestic housing issues.
Shane Lee
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