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A New Investment Strategy: Preparing for End Times


Investment professionals have a new pitch: The sky could soon be falling.

While Greece took a step back from the brink on Wednesday, the possibility of a default remains a fear. Europe's debt crisis, as well as natural disasters and political uprisings, are prompting investors both big and small to seek out investments that promise to protect their portfolios in the event of economic Armageddon.

Worried that Greece could go belly up? So-called black swan funds - named for rare and unexpected events - offer a way to profit in the event of a market collapse. Think a slowdown in the United States or China could set off a global economic crisis? New exchange-traded funds are popping up to help pad investor confidence.

Since the financial crisis, many investors have prospered from a rebound in the markets. But recent events have led some to brace for the worst. "Clients are suddenly realizing the world isn't as rosy as it's been," said Ahmed Fattouh, a hedge fund executive. "It makes a lot of sense to have these tail protections on."

That is, protections against what Wall Street calls "tail risk" - a disaster that is estimated to have less than half a percent chance of happening. Investors learned about tail risk the hard way. For decades, diversification - spreading holdings across stocks, bonds and other investments - was promoted as the way to protect investments from market crashes. But the financial crisis proved that seemingly unrelated assets could fall in unison. As a result, an increasing number of investors now want protection for financial end times.

These funds and offerings, usually costly and complicated, can be likened to insurance. Investors lose money on them during normal times, but they stand to gain if catastrophe strikes.


Full article at: http://finance.yahoo.com/news/A-New-Investment-Strategy-nytimes-1977344757.html?x=0&sec=topStories&pos=4&asset=&ccode=