Should you join the rush to VIX funds?

VOLATILITY

Owen Brolly, senior hedge fund analyst at Collins Stewart Wealth Management, looks at the pros and cons of tail risk protection funds.

Methods for hedging should form a part of a multi-asset solution. One material aspect of recent changes to hedge fund allocations is the inclusion of specific hedging strategies to seek positive returns during negative equity markets, via what are known as tail risk protection funds. Conceptually, tail risk is the risk that losses (particularly large losses) occur more frequently than expected (the idea of “fat tails” rather than normally distributed returns). Until recently tail risk protection funds were an esoteric allocation, but in the last six months everyone has found the VIX a...