With or witout crash danger, we counterweight larger losses
While in case of a danger of a severe market correction or even a crash danger, we would also use our asset allocation in order to prevent our portfolio from such danger, this is not possible for "normal" substantial price decline situations.
For such situations, we use (upon client´s request) our very highly experienced counter- weight methods with entry and exit stopps.
The counterweight itself consists of a future position which builds the exact opposite of the asset.
For example, in case of the asset being 10 gold bars 400 oz each totalling 4000 oz, the counterweight would be 40 CME- GC futures (used with the "speculator margin without need for delivery" short (each equivalling 100 oz) which will be plugged- in at a certain level and plugged out again when not needed anymore.
Where does the profit of the counterweight (hedge) occur?:
At first hand, everybody would - and rightly so - understand that once the price of an asset goes down, the value of the hedge position goes up and therefore, the value of both together did not change, a loss was avoided.
In practice, the even more important function is the reduced risk in holding volatile assets (such as shares and precious metals) in heavy quantities and avoiding holding bonds or alike for "safety". As a result, more of the underlying is kept in valuable assets and it is the long term increase in those which creates most of the performance of our method. The ability and readiness to hedge and protect when needed allows another portfolio than one would have without such ability.
The hedge itself avoids the loss. The different composition of the portfolio is the key profit contribution.
Example of a counterweight avoiding a precious metals price waterfall
You see a real example of an avoided price waterfall in a physical precious metals fund in which Christian Vartyan was the fund manager:
NAV in CHF before the large precious metals price waterfall in april 2013
Actual chart of the waterfall with date
NAV in CHF after the large precious metals price waterfall in april 2013
Example of a counterweight / High volume short trade GER 30
Systemic Podcast explaining Hedging and Short- Trading (German)
Systemic Podcast explaining Hedging and Short- Trading (German language):
Multi- correlational counterweights for very large inventories
Very large inventories may surmont the actual liquidity of the future´s market thus not allowing counterweighting by classical hedging for reasons of SIZE (or lack thereof) of the market.
Very large inventories may not wish to be known by the futures administration authorities, therefore not allowing counterweighting by classical hedging for reasons of PRIVACY (or lack thereof) of the market.
We have developed correlational counterweight- tool- sets for such purposes.
Please see the attached picture for an example.
Example of counterweight avoiding large stock market decline
For Trading Supplements and Clients refusing Futures
For clients refusing futures and for trading supplements, a very accurate prediction system for the gold price has been developed.
This can be used with simple ETFs such as the SPDR Gold Trust - GLD (exchange: New York Stock Exchange Arca).
In case, too high liquidity blocking for the counterweigh use should be avoided, it can be used with leveraged ETFs such as but not limited to:
if short: Direxion Daily Gold Miners Bear 3x ETF - DUST (exchange New York Stock Exchange Arca);
if long: Direxion Daily Gold Miners Bull 3x ETF - NUGT (exchange New York Stock Exchange Arca)
therefore creating an alternative or a supplement to the use of Future´s Contracts.
The handling of such ETFs is easier than the handling of Future´s Contracts, yet not so accurate nor so fast. Nevertheless, stops can be entered and the advantage of avoiding even theoretical margin calls is the main benefit.
Of course, the prediction system can be used for trading supplements to the investment portfolio and it can be used with Future´s Contracts as well. Any higher speed tools always fit to a signal that was built for tools with lower speed such as the mentioned ETFs.
To be clear, this is not linear hedging but serves the same purpose.
Scenarial Counterweights for Real- Estate Exposure
Real Estate cannot be hedged directly nor can a counterweight be linear if apllied to Real- Estate.
Nevertheless, interest rate increases can be hedged in some scenarial ways.
Real- Estate prices can be hedged in some scenarial ways using quoted REITs as the main instrument.
We do not perform such hedges for our own portfolio but produce measure- made solutions for clients upon request.