two years of turmoil
Looking at March 2020, the biggest fear was that the pandemic would plunge the world into a deep recession; Which was warned by aggressive fiscal and monetary support. Since then, the global economy has been recovering from fits and starts with new waves and strains of COVID-19 as well as disruptive lockdowns and other government policies implemented in an effort to avoid mass infections and fatalities.
“In November 2020, the market rallied after the vaccines were shown to be effective against the virus for the first time. We saw unprecedented volatility in the response to that,” DeRoche says. “In the US, we saw a dramatic response last December and January due to the increased prevalence of infections related to the new Omicron variant, including people who were already vaccinated. Had it installed.”
Many say that the current market volatility has strengthened the case for more actively managed investment strategies. This certainly became apparent during the turmoil of November 2020, when a wave of excitement in the markets created a wave that pulled down the AGFIQ US Markets Neutral Anti-Beta CAD-Hedged ETF, which traded as QBTL on the TSX. This is meant to hedge against a downtrend in the US stock market by providing negative beta exposure.
“If you think about the strategy itself, it’s long low-beta or low-volatility securities, and short high-beta or high-volatility securities. In a reopening portfolio, you’ll find all the highest-volatility names. See you,” DeRoche said. “When the market took off in response to the news of successful COVID vaccines, it was much better to reopen that portfolio, and we underperformed.”
As QBTL was a purely index-tracking ETF, the AGF could not adjust its holdings, even as gross leverage and other risk factors in the portfolio increased. In response to these issues, AGF opted to move funds to a rules-based method, with the ability to react to market conditions and certain risk factors, when appropriate.