Hedging volatility through diversification across multiple assets classes
08 November 2019 |
3:18 am
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.
[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.”
Related
1 day ago
The Lagos Chamber of Commerce and Industry (LCCI) is deeply worried about the various economic headwinds confronting the stability of the Nigerian economy.
1 day ago
Worried by the dwindling oil production and the need to drive investments in the nation’s oil and gas sector, the Federal Government, through the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, has underscored the imperative of ramping up production as a pivotal strategy to ensure stability in the midstream and downstream sectors of the industry.
1 day ago
The Nigerian Ports Authority (NPA) is awaiting the Debt Management Office's (DMO) final review and approval of Citibank's $700 million loan mandate, which will fund the rehabilitation of the Apapa and Tin-Can Island ports in Lagos.
2 days ago
A foreign investor at TLG Capitals, Isaac Marshall, has attributed the naira gain to the decision of the Central Bank of Nigeria (CBN) to clear the FX backlog. Nigeria's foreign exchange (FX) reserves have fallen to a six-year low, Marshall said in a statement on his LinkedIn account on Thursday. He stated that this decline…
2 days ago
Stakeholders in the insurance and pension industry have called on operators in the sectors to adopt artificial intelligence (AI) to drive business expansion in the country.
2 days ago
Though it does not have the power to regulate prices, the Federal Competition and Consumer Protection Commission (FCCPC) will deploy an existing legal framework to enforce fair competition and consumer protection provisions to achieve fair prices of commodities.
2 days ago
Inflation in Nigeria is reaching its peak now and will decelerate toward the middle of the year, Director-General of the Budget Office of the Federation, Ben Akabueze, has said.
2 days ago
Nigerian Breweries (NB) Plc has disclosed that the proposed N600 billion recapitalisation scheme by way of rights issue would settle N153 billion outstanding foreign exchange (FX) losses and part of its local bank debt facility.
2 days ago
The International Renewable Energy Agency (IRENA) is seeking a new approach to energy security amidst geopolitical concerns and a push from fossil fuels.
2 days ago
The Chartered Institute of Bankers of Nigeria (CIBN) 2024 yearly lecture, slated to take place on April 23, at the Civic Center, Victoria Island, Lagos, has its theme as "Improving Availability of Credit in the Nigerian Real Economy: The Critical Importance of Liquidity."
×
Get the latest news delivered straight to your inbox every day of the week. Stay informed with the Guardian’s leading coverage of Nigerian and world news, business, technology and sports.
0 Comments
We will review and take appropriate action.