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Swiss Firm Woos Bears With Bet Against Nine Stock Gauges at Once

Swiss Firm Woos Bears With Bet Against Nine Stock Gauges at Once

For stock doom-mongers fretting over the resurgent pandemic, stumbling global economy and looming U.S. election, a Swiss firm is touting the ultimate hedge: A structured product that shorts nine markets all at once.

Zurich-based Leonteq AG is mounting a fresh push for its exotic investing strategy that bets against everything from British multinationals and U.S. small caps to emerging-market companies.

The idea is that investors can ride a synchronized stock meltdown through a bearish index tracking a slew of inverse exchange-traded funds.

“The product is a simple way for private investors to engage a broad-based global equity hedge without concentration risk -- i.e. trying to pick losers in the middle of a potentially disorganized equity market correction,” said Peter Rosenstreich, head of market strategy at Swissquote, which provides the index for the notes.

As investors seek to protect gains reaped from a rallying stock market, sales of structured products are booming. In Switzerland alone, investors traded 87 billion Swiss francs ($95 billion) of the securities during the second quarter.

Swiss Firm Woos Bears With Bet Against Nine Stock Gauges at Once

Structured products combine bonds with derivatives to deliver customized exposure to assets like stock indexes and individual shares. The Swiss-listed Leonteq note, which matures in September 2021, jumped to as much as 137 Swiss francs during the Covid crash, but has been on a relentless decline ever since.

“Short ETFs are a great tool for betting a couple of days on a bearish momentum, however, it is not designed to be used as buy-and-hold instrument,” said Martin Raab, a Zurich-based senior portfolio manager at Asset Security Trust, who buys products of this kind on occasion.

Hedges are in high demand across Wall Street. One measure of protective activity -- the gap between bullish options positioning in individual stocks and indexes on the Cboe -- just reached the widest level in more than two decades. The U.S. election was also at one point the costliest hedging event in the history of the VIX Index.

The Leonteq product is not for the fainthearted. Inverse ETFs typically reset their exposure on a daily basis, meaning that investors who hold them for more than a day can find performance diverging from their expectations.

“It requires excellent market-timing skills,” said Laurence Black, founder of advisory firm The Index Standard.

©2020 Bloomberg L.P.