Market volatility in the United States remains elevated, and recent signs of recovery may be misleading. In this climate, institutional investors are increasingly turning to active hedging strategies. “Compartments provide a fast and cost-efficient vehicle to implement strategies that aim to limit downside risk, particularly for exposures to indices like the S&P 500 or Nasdaq”, says Daniel Knoblach, Board Member at Super Global Services SA.
Despite recent indications of a more conciliatory stance towards China, Donald Trump’s tariff policies continue to inject uncertainty into the markets. Several US companies have cited trade tensions as a material risk in their latest quarterly reports. The VIX, the volatility index often referred to as the market’s ‘fear gauge’, remains elevated, and the US dollar shows signs of further weakening. “Investors with US equity exposure have already experienced considerable losses this year”, Knoblach adds. “While markets are staging short-term recoveries, persistent uncertainty is prompting a growing number of institutional investors to adopt robust hedging strategies.”
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One effective method for managing downside risk is through option strategies, which can help mitigate further losses in exposures such as the S&P 500 or the Nasdaq. A key advantage for institutional investors is the ability to implement a tailored hedging model immediately and make it investable for their clients without delay. Setting up dedicated compartments under Luxembourg law is both straightforward and cost-effective. “The time advantage of compartments compared to traditional fund structures is particularly valuable in dynamic market conditions”, explains Knoblach. “Institutional investors can gain rapid access to a bespoke financial instrument.” In addition, compartments help reduce operational complexity: as with a fund, assets are traded once at the compartment level and then allocated to individual client custody accounts.
Super Global facilitates the setup of such compartments, often using Interactive Brokers as the trading platform. The benefit? “Many portfolio managers are already familiar with this platform, and our systems are fully integrated”, Knoblach notes. As a result, direct interfaces can be provided and complex KYC procedures for account openings are avoided. “We handle the full administration, including adherence to all regulatory requirements”, says Knoblach. “Our clients benefit from a best-in-class solution that seamlessly integrates a customised Luxembourg AMC with their preferred broker infrastructure – fully tailored to meet specific needs and investment objectives.”