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MELBOURNE​
Ground Floor,

61 Spring Street

MELBOURNE VIC 3000

 

Tel: +61 3 8662 4006

Fax: +61 3 8662 4001

Email: cs@jacksoncapital.com.au

SYDNEY

Level 44, Grosvenor Place
225 George Street
SYDNEY NSW 2000

​​

Tel: 1300 648 165

Email: cs@jacksoncapital.com.au

BRISBANE

Level 9, Riverside Centre
123 Eagle Street
BRISBANE QLD 4000

 

Tel: 1300 648 165

Email: cs@jacksoncapital.com.au

Disclaimer: Trading foreign exchange and futures on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange or futures you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange and futures trading and seek advice from an independent financial adviser if you have any doubts.  Past performance of financial products is no assurance of future performance. Jackson Capital Pty Ltd (ABN: 82165682842) is a Corporate Authorized Representative (CAR No. 446944) of JB Alpha Ltd (ABN 76 131 376 415) which holds an Australian Financial Services Licence (AFSL no. 327075)

How can I Manage Risk and Return in my Portfolio?

Adding an investment component that secures against market/ systematic risk.

By now you should understand how to properly diversify your portfolio to help avoid specific and sector risk. But how about overall market risk or systematic risk. Remember this is the type of risk usually gets everyone. The best example is the 2008 financial crisis which effected the banking sector and the systemic fall out provoked all other sectors.

What is Hedging?

You may have heard of investment companies called Hedge Funds. These are simply investment companies that try to outperform long term benchmark such as an index. For example, the ASX200 over the last 6 years about 50% where HGL over the same period made 245%. See below cumulative return from 2010 to 2016.

Instead of long term investing i.e. set and forget, a hedge firm will have active managers and traders who will constantly analyse and assess their trades to try to capture more reward and mitigate risk. They also look for anomalies to find unseen value in an asset. However, the more actively managed a fund the more expensive it becomes. This is due to the additional cost of highly experienced analysists and traders. Therefore, sometimes hedge funds may not outperform their benchmark.

How can this be achieved?

  • Long term investing verse short term trading

  • Long or short (go with the flow)

  • Access 24 hours

  • Access large markets (liquidity)

"Someone is sitting in the shade today because someone planted a tree a long time ago."

 

Warren Buffett

Hedging on a grand scale – investment hedging

So, hedge funds try to outperform their benchmark or invest in value areas. So it would be prudent to include such an asset in a portfolio. Problem is most hedge level funds are not available to retail investors.

You may have a portfolio which includes property and have a handful of Bluechip shares or ETF. But you want to include a hedge against systematic risk and increase return for the portfolio. Consider the below.

 

Let’s run two scenarios, assume $1,000,000 valuation in 2010

1. An investment portfolio with Hedgling

      MHP - Melbourne House Prices - allocation 70%

      HGL - Jackson Capital Hedgling - allocation 10%

      SYI - SPDR MSCI Australia Select High Dividend Yield Fund (smart Beta) - allocation 10%

      VAS - Vanguard Australian Shares Index ASX300 - allocation 10%

 

2. An investment portfolio without Hedgling

      MHP - Melbourne House Prices - allocation 70%

      HGL - Jackson Capital Hedgling - allocation 0%

      SYI - SPDR MSCI Australia Select High Dividend Yield Fund (smart Beta) - allocation 10%

      VAS - Vanguard Australian Shares Index ASX300 - allocation 20%

The portfolio without Hedgling returned $405,039.87 and the one with Hedgling returned $625014.76. this mean a safe 10% allocation to Hedgling over a 6-year period added an extra $219,974.89 to the portfolio.