With recession signals starting to turn orange, investors need to consider tactical asset allocation as a viable tool to expand the relative performance of their portfolios. This applies especially to long-only investors who feel most comfortable with non-derivatives such as stocks, ETFs, bonds and mutual funds as part of their investment mix.
Short-selling in economic slowdowns
Traders and investors who are open to derivatives have another alternative to merely rebalancing their portfolios during changing business cycles. With equity markets statistically down 35-55% in a contracting economic environment, short-selling becomes an interesting strategy not only to hedge a long exposure, but also to earn potential returns in bearish markets.
A vast variety of derivatives can be used to short securities across industries and geographies. The most popular ones, however, are futures, options and CFDs (Contracts for Difference). While futures and options might be more appealing to the experienced trader, CFDs are considered most versatile as they are offered on a wide range of underlying asset classes including stocks, indices, bonds, commodities and currencies.
You need a broker that gives you the complete toolbox
In light of the above strategies, it is important for traders and investors to select a broker that does not limit their opportunities during difficult market conditions. Tactical asset allocation relies on the availability of a wide range of cash products that is not limited to certain geographies or few large cap stocks from selected exchanges. Likewise, short-selling can only be a suitable strategy if the right instruments and scope of underlying securities are made available to the short-seller.
Saxo is one of few brokers that offer a true multi-asset product range encompassing more than 40,000 financial instruments. Saxo clients can access FX, CFDs, stocks, commodities, futures, FX options, listed options, ETFs and bonds, all through a single margin account.
Our wide range of stocks, ETFs and bonds allow investors to diversify their portfolios across sectors and geographies, while CFDs, futures and options provide an abundance of choice to traders who want to go short for hedging purposes or to engage in speculative trading.
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