Bloomberg TV
- Mark Spitznagel, the boss of Universa Investments, saw its fund return 4.144% in the first quarter.
- He explained to CNBC on Monday why hedge risk hedging is generally a “costly and bad strategy”.
- Spitznagel warned investors at home against using the investment technique. Instead, he said, they should be “realistic about risk mitigation strategy.”
- He also described the Federal Reserve’s stimulus as ‘highly destructive,’ creating a ‘massive difference in wealth’. ‘
- Visit the Business Insider website for more stories.
The chance of a return of 4.144% is attractive. But Mark Spitznagel, the boss of the fund that generated it, urges retail investors not to try similar strategies at home.
The head of Universa Investments told CNBC on Monday that hedge risk hedging is generally a “costly and a bad strategy.”
“You can not just talk about hedge-risk hedging as a thing, as a kind of commoditized entity,” Spitznagel said. “This is something I’ve been doing for 25 years, and people are going into space, and all of a sudden it’s a thing, which’s fun. But in many ways, tail hedgers are more different than they are equal. So we have to be careful. of be. “
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In April, The Wall Street Journal reported on a letter to clients in which Spitznagel highlighted the extreme returns that his fund strategy saw when the market collapsed: The S&P 500 index lost 12% in March, but an investor with 3.3 % of the assets in the tail of Universa risk strategy and the rest in an index fund that follows the benchmark would have returned 0.4%.
According to The Journal, no other risk mitigation strategy, such as diversifying with gold or bonds, would have had a positive return during that period.
Not everyone agrees that this strategy is a good one. AQR criticized it in April, saying it works in the short term, but not in the long term. But Spitznagel is nonplussed.
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“They can not get the kind of explosive adverse protection that we do. This is the derivatives market, and everyone should really stay away from here,” Spitznagel said. “These are weapons of mass destruction in the wrong hands, for sure. I think it’s enough for people to just be realistic about the risks, realistic about the risk mitigation strategy.”
The investment chief also said the Federal Reserve was accelerating the market tube. The Fed’s recent moves to support markets and small businesses “feel good” and “look good” in the short term, he said, but “the long-term effects of this game are very, very destructive. “
Spitznagel added: “We also do not pay attention to the massive difference in wealth that is made when we inflate these financial markets. It is unintentional, really.”
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