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Why Hedge Funds Have a Dull Outlook on the Market in 2H17

PART:
1 2 3 4 5 6 7 8 9 10
Part 3
Why Hedge Funds Have a Dull Outlook on the Market in 2H17 PART 3 OF 10

How Market Volatility Is Trending

Market volatility

Market volatility is playing an important role in the present scenario. The CBOE Volatility Index, which measures the volatility in the S&P 500 Index, is also known as the fear index.

How Market Volatility Is Trending

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Since the start of 2017, market volatility has remained at lower levels. The VIX Index touched a historic lower level of $9.36 on July 21, 2017. The Volatility Index generally moves in the opposite direction as the market (SPY) (QQQ).

In the first half of 2017, the VIX Index fell nearly 13.2%. The S&P 500 Index rose nearly 7.6% during that period. In various past events such as China’s yuan devaluation (FXI) (YINN) and the Brexit decision (EWU), the market showed a huge drop in performance while the VIX Index rose dramatically.

Fund managers’ view

Recently, we saw that the billionaire investor Jeffrey Gundlach took a long position in the VIX Index. He is expecting that the S&P 500 Index could fall 3% by the end of 2017. So taking a long position in the VIX Index could provide a good return in the second half of 2017.

Bill Ackman also said that he is protecting his investments from a potential market (VOO) (IWM) drop in the form of buying out of the money call options in the Volatility Index. As these above fund managers’ steps suggest, the volatility index could rise in the second half of 2017.

In the next part of this series, we’ll analyze the performance of the dollar index.

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