Broker Check

Volatile Trading in Leveraged Securities

March 30, 2021
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Recently, there have been news reports of volatile trading in a handful of both domestic and international securities. These movements have been linked to the reported liquidation of a leveraged hedge fund that experienced liquidity problems. This, in turn, caused a few investment banks that provided loans to the fund to sell collateral.

This vicious circle in the devaluation of the securities led to even deeper declines and further selling. Two of the investment banks involved reportedly experienced considerable losses as a result. While all of this is fluid, it appears that the issue is not a systemic problem. The securities involved were relatively few and only a small number of entities were impacted. Fortunately, there have been little to no spill-over effects into the overall markets to date.

We always try to be vigilant with matters that may concern our clients and their portfolios. While events like these garner media attention they are actually not uncommon. There have always been individuals and institutions that use leverage and very aggressive strategies to produce outsized, short-term returns. Sometimes these strategies work and sometimes they fail in dramatic fashion, as was the case here.

As mathematically-based stewards of wealth, we take a different approach. Our process is to build risk-aware portfolios that are diversified and goal-based. We believe performance is important, but we also know that there are people attached to the money we manage, and that transparency and risk control are of equal importance. This approach attempts to keep clients out of the murky corners of the market, where these unpredictable and volatile events are more likely to occur.

We will continue to monitor these events. Let us know if there is anything you would like to discuss. We are here for you.