Beneath Markets’ Calm Are Signs of Growing Investor Caution
While the VIX rose nearly 9 percent on Wednesday after President Trump’s comments, it continues to trade at historically low levels, and many investors continue to wager
that lots of money pouring into markets and an improving global economy will keep the index quiescent.
What is driving this anomaly, some say, is a recognition
that eventually investors will no longer be able to ignore recent headline risks — be it nuclear tensions with North Korea, a trade war with China or a debt ceiling crisis in Washington.
“But we do think that there are risks in the world that are not being priced in.”
To Mr. Koesterich’s point, some of the best-performing investments in the world this year have been exchange-traded vehicles
that investors can use to bet against the VIX, the Chicago Board Options Exchange Volatility Index, better known as Wall Street’s fear gauge.
“There has been a Pavlovian response by investors to disregard any piece of bad news or any spike in volatility — and
that has been a very profitable strategy,” said Russ Koesterich, a portfolio manager for BlackRock’s $39 billion Global Allocation Fund.
“Gold can help especially if the dollar is not a safe haven anymore,” Mr. Koesterich said,
referring to how the dollar has weakened in response to the spate of news from Washington.
Since the beginning of the year, he has been adding to his gold position,
and it is now the Global Allocation Fund’s second-largest position, according to Y Charts.
