• International stock market indices have so far experienced a catastrophic 2022
• Gold, bitcoin and bonds offered no protection against inflation – unlike Spitznagel’s funds
• Spitznagel recommends that small investors consistently invest in shares
Investor fear is back. While the summer rally raised hopes of an end to the bear market among stock market traders, this cautious optimism has vanished since the latest inflation figures from the USA at the latest. The DAX dipped below the 11,900 point mark last Wednesday (September 28), marking its lowest level since November 2020. The US traditional index Dow Jones also moved into bear market territory (by definition 20 percent below the all-time high) this week. Meanwhile, ever-increasing inflation is gnawing at investors’ already weak purchasing power.
Classic hedging has not lived up to its reputation so far in 2022
Particularly bitter: there were few options on the capital market to protect against the galloping inflation rates. The classic strategies to protect against inflation from bonds to gold to bitcoin have not worked in the past few months. On the one hand, there is the weak price of gold, which at a current price of $1,660.80 per ounce (as of September 29, 2022) is down 3.9 percent over a twelve-month period. Bitcoin, sometimes celebrated by crypto fans as “digital gold”, even lost 53.3 percent in the same period. Oil prices, recommended by some experts as the ultimate hedge against price losses and inflation after the Russian attack on Ukraine, have also fallen by more than 25 percent in the last three months – measured by a barrel of Brent oil.
Bonds, which are usually recommended as portfolio additions for defensive investors, did little to ease the situation in portfolios. On the contrary, bond prices have literally collapsed in recent months – the high yields, which run counter to the price of the bonds, bear witness to this development.
US dollars and isolated stocks provided shelter
Those investors who sought protection in the US dollar were better positioned. The greenback is at a record high against the battered British pound. At times, the US dollar was also trading at its highest level against the euro since 2002. This once again confirmed the doctrine that the US dollar, as a stable world leading currency, can benefit from a high degree of uncertainty on the capital markets. The USA is also far less affected by the consequences of the Ukraine war than Europe, and inflation is also likely to fall more quickly overseas than in Europe given the more offensive rate hikes by the Fed euro zone. The Swiss franc also represented a worthwhile foreign exchange investment in the current year.
In addition, individual stocks were able to defy the bear market in the current year. Many of these stocks belong to consumer staples stocks like Coca-Cola and Procter & Gamble or energy stocks like Shell and ExxonMobil.
Universa fund was the optimal risk protection in the last few months
Another alternative has been some hedge funds, which also often make risky short bets. The Universa fund set up by US investor Mark Spitznagel in 2007 has performed particularly well in recent months. For the year, Spitznagel’s fund is clearly in the black. Incidentally, this is not the first time that Universa has gone through the roof in times of crisis. Even during the Corona crash, the fund made an incredible return of 4,144 percent in the first quarter of 2020. Universa also benefited from the 2008 financial crisis. Spitznagel is also extremely pessimistic about the coming months: he warns that the Fed’s offensive interest rate policy will deflation could trigger. Although inflation rates will soon fall sharply, this will cause serious damage to the US economy, Spitzberg predicted to Markets Insider. Accordingly, he sets up his risk-reducing hedge fund defensively.
The only catch here: An investment in Spitznagel’s funds is not possible for small investors, only large investors and institutional investors have the opportunity to add shares of the Universa fund to their portfolio for hedging. Spitznagel also emphasizes that individual investors cannot replicate his fund. Universa works with an enormous number of technical chart and economic signals and uses highly complex IT programs.
That’s what Spitznagel advises small investors
Spitznagel’s advice for small investors is all the more interesting, especially since it may surprise one or the other investor in view of his often very pessimistic-sounding forecasts. Similar to Warren Buffett, Spitznagel recommends consistent buy and hold investing in broad-based stocks or diversified funds in an interview with the “Wall Street Journal”. Investors should collect shares and hold them for the long term. Because even if the stock market is likely to fall in the short term, securities are the best way to protect money from inflation and maximize wealth in the long term. In this context, Spitznagel emphasizes that Universa’s customers only use the fund as a risk-hedging portfolio addition, while remaining invested in risky assets. Even small investors could now participate in the long-term upward trend of the stock exchanges with the help of low-cost neo-brokers and ETFs – as long as they keep their cool during painful setbacks like in the current year, according to Spitznagel.
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