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Hedging volatility through diversification across multiple assets classes


[FILES] Hedging volatility. QUERYOK

Increasing economic volatility and geopolitical risk is currently fuelling the rise in multi-asset trading as a way for investors to hedge their risks and heighten returns in an increasingly volatile marketplace.
Hitherto, investors have tended to trade one asset class time, however, they are increasingly ‘hedging’ their positions across multiple asset classes, being nimbler, and focusing not just on capital returns but capital preservation too.
This is because a diversified portfolio reduces risk by not being concentrated in one specific area of investments, one of the most important principles in investing.
A diversified portfolio allocates capital across different asset classes such as cash, fixed interest, property, domestic and international shares, as well as within asset classes, e.g. industry sectors, to reduce overall investment risk.
Indeed, with this trend, traders increasingly trade across different asset classes and geographies because assets tend to rise and fall at different times if investors have exposure to a range of assets.
A fall in one will likely be balanced out by an increase in another, thereby helping to minimize losses and provide a more stable overall return, a key benefit of diversification and important component of managing risk and reaching financial goals.
Therefore, maintaining a diversified portfolio is essential to any long-term strategy. As investors experience weakness across the Eurozone, with most economic powerhouse, witnessing major manufacturing slow down, economic weakness and market unease, these factors have created a scenario where traditional investing strategies no longer work.
To this effect, Cordros Asset Management Limited (CAML), has said its Dollar Fund will help investors diversify their portfolio as well as enable those with US Dollar obligations to hedge against currency risk.
The Group Managing Director at Cordros, Wale Agbeyangi, while speaking at the signing ceremony in Lagos, at the weekend, noted that the fund’s objective is to achieve capital appreciation in short to medium term for investors with USD and convertible currencies.
He said the dollar fund was a mutual fund authorised and registered in Nigeria, as a Unit Trust Scheme, adding that the company is offering 20,000 units for subscription at $100 each.
“Some people have expenses in dollars while their investments are in Naira; they can be affected by volatility in Naira, exchange losses or devaluation in naira as they are exposed to that risk.
“This fund shields investors from that risk and they also have a fairly good return. For investors in Diaspora, the expected return from investments in other assets overseas is not a good as the return from investing in this fund.”
He said as soon as the Initial Public Offering of the fund is done, the company would grow the fund significantly from its current size of $2 million and subsequently list it on the stock exchange.
According to him, the minimum amount of investment is $1,000, which is good for retail investors as the mutual fund offers the same return with other investment in Eurobond notes with minimum investment of $2,500.
The Managing Director of Cordros Asset Management Limited, Mrs. Morenike Da-Silva, said: “With the Cordros Dollar Fund, investors who have been discouraged by the high entry levels for US Dollar based investments will now have easier, convenient access.
“We believe that the Cordros Dollar Fund provides professional management and will help investors hedge their savings from the eroding effects of inflation as the underlying assets are high-quality Eurobonds and USD money market instruments.”

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