What opportunities do you have in the current market situation?
For the simplest, low risk method to earn a return on your money, you may just wish to hold it as cash with Saxo. Saxo offer highly competitive rates of interest across multiple currencies.
For those equity investors that simply want to reduce overall risk, short-term bonds or holding cash on their Saxo account should be considered. Clients interested in learning what bonds are and what they can offer a portfolio in terms of income (especially on idle cash) and portfolio diversification can find a lot of useful information in our published Starter Guide. Another consideration to add fixed income diversification is via a bond ETF; the iShares 20+ Year Treasury Bond Fund and iShares USD Treasury 7-10 Year UCITS ETF track the performance of a basket of bonds.
Saxo’s analyst Peter Garnry wrote in a note that small caps are always a bigger risk when financial conditions are tightening, so investors should consider reducing exposure to small caps. Quality companies with low debt levels, high return on invested capital and market leading positions should be preferred. Examples of ETFs providing exposure to different variations of quality are FCF US Quality ETF, VanEck Morningstar Wide Moat, and iShares Edge MSCI World Quality Factor UCITS ETF.
Thinking more about ‘Safe Havens’, John Hardy, Saxo’s Head of FX Strategy pointed toward the Japanese Yen and gold as the two most notable safe stores of value which roared higher as the focus on weak banks weighed on markets.
Those that see the situation worsening before getting better can look to adopt hedging strategies by adding short exposure. There are various instruments available for this on the Saxo platform including Inverse index tracker funds, which provide short exposure to a particular sector or index, buying of put options on individual stocks or a stock index which is like buying insurance, or lastly use of a simple Index CFD. Adding these instruments to a long equity portfolio will provide profits to off-set losses during a market down turn, a few of the inverse trackers include; Lyxor S&P500 Daily Inverse UCITS ETF (DSP5:xpar), Lyxor CAC40 Daily 2x Inverse UCITS ETF (BX4:xpar), Xtrackers S&P500 2x Inverse Daily Swap UCITS ETF (DBPK:xetr), Lyxor EuroStoxx 50 Daily 2x Inverse UCITS ETF (LSK8:xetr).
If the current situation doesn’t spiral out of control, the leading indicator is to look at correlations between bank share price moves. As long as all moves are extremely correlated, the market is macro/fear/risk unwind driven. As soon as correlations start to decrease, that’s the first sign that smart money and fundamentals are behind the wheel again.
Why clients can trust Saxo with their money
Saxo offers very competitive rates of interest on client deposits and has taken strategic decisions that allow us to be in a strong financial position with a sound balance sheet and very low exposure to movements in long term interest rates. Saxo does not have a mortgage or commercial loan book and therefore is not exposed to the inherent risks of credit losses from those activities. Clients and partners can and should continue to trust Saxo to be a safe-haven to place their uninvested deposits during this crisis.