Goldman Sachs has come up with a new kind of hedge fund, one that offers investors protection in the event of an economic decline, according to The Globe & Mail.
The firm said that an investor's best insurance is to purchase put options on the Nasdaq 100 stock index using QQQQ ETFs, or even buy puts on the Russell 2000 index.
These indices react well to economic change, since investors who purchase these put options expect that the value will decline. The options give them the right to sell at a pre-determined price by a certain date. Should the price fall below that, they can purchase the ETF at the lower price, sell at the higher rate and pocket the difference.
"We believe that many macro-oriented investors effectively have embedded 'long U.S. growth' position either through net longs in U.S. equities, structured exposure to cyclicals like basic materials or longs in cyclical and emerging market equities," Goldman analysts said. "If U.S. growth views fall, all of these trades become vulnerable."
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.