Large investors have started to insure themselves against a market crash. What assets are they choosing?

Large investors are entering the vacation season with increased caution, stepping up protection of their portfolios. They fear a sell-off similar to the one that occurred last August. Back then, fears of slowing global economic growth coincided with seasonally low trading volumes, leading to sharp swings in financial asset prices around the world. The situation is similar now - the ceasefire in the Middle East looks shaky, oil prices are bouncing up and down, and Donald Trump's trade policies remain unpredictable.

  «We assume that in the next three months markets will not receive the positive signals that are already embedded in prices,»   said Reuters HSBC Asset Management chief investment officer Xavier Baraton. He bought put options on the stock to hedge against a decline. 

Goldman Sachs recommended that investors actively use ways to protect themselves from market drawdowns using volatility instruments (e.g., buying VIX options or volatility futures that rise in price when panic strikes - Oninvest), interest rates (buying derivatives to play on rate changes) and trend-following strategies (algorithms that track

Trevor Greetham, head of multi-asset strategies at Royal London Asset Management, told Reuters that their algorithms signaled the need to buy stocks. But the managers decided not to follow those cues and, instead, reduced exposure to the stock to reduce risk.

The deadline for the US-EU trade deal is July 9. There is little progress in the negotiations, but markets are behaving as if there are no risks. If ignoring these threats continues, risk protection will become even more urgent, stated Chris Jeffrey of LGIM.    

The options market is signaling: traders are expecting a repeat of one-day spikes in volatility like last August, said Jerry Fowler, head of European equities strategy at UBS. «Everyone is clear - this summer is full of market catalysts, so far fewer people will go on vacation,» he concluded.

Investment giant Blackrock reported earlier this week that it is betting on U.S. and Japanese equities over a tactical horizon of six to 12 months, keeping an overweight on them, and also sees European corporate debt securities as attractive.

- U.S. stocks will once again lead the global market: the artificial intelligence theme continues to support corporate earnings in the short term and could boost performance in the long term, Blackrock believes.

- Japanese equities are supported by shareholder-friendly corporate governance reforms. Blackrock says it prefers investments without currency hedging, as the yen tends to strengthen during periods of market stress.

- Blackrock prefers European corporate bonds to American ones - the former look more attractive due to more favorable spreads. The investment company keeps an overweight in short-term U.S. government bonds, considering them as an analog of cash. At the same time, it reduces its share in long-term treasuries - growing US government debt and de-globalization make them less predictable and may lead to an increase in the term premium, Blackrock believes.

This article was AI-translated and verified by a human editor