Hedge, But at What Cost?

Crowded trades can undermine investors’ attempts to find safe havens, according to an article in last month’s Wall Street Journal. “Now it is more expensive to insure against losses in utility and consumer-stapes stocks and related trades than numerous assets world-wide.” Defensive stocks “soared” in the first half of this year, the article says, “as ultralow bond yields drove money flows into shares of high-dividend companies.” But this flow has fallen off in the third quarter “as valuations for the sectors reached multiyear highs.” And if the Fed raises rates in December, the effect on “bond-proxy” stocks such as utility, […]