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How to use the Hedging Wizard

The Hedging Wizard allows you to replace poorly performing investments with ones that are pre-tested to do well in a specific scenario. This video explains how to use it:

 

The hedging wizard can help you reduce risk by diversifying prospect holdings. 

One example of this is to run the historical scenario “Past Crashes: Financial Crisis: Max Draw Down” for a risk-averse prospect. In this example, we would reduce risk by removing more volatile equity positions and replacing with a more conservative equity, bond fund, or SMA.

A client conversation might go like this: “One of my jobs in helping you reduce risk is to suggest ways to diversify your investments. What I’m putting together is a potential allocation that will 1) reduce your risky assets and 2) add less volatile investments.”

The Steps to Hedge Risk:

Step 1: From the Stress Testing page with your portfolio and downside scenario selected from Interactive Stress Testing, click the "Hedging Wizard" button on the side navigation.

Step 2: Select from one to all of the portfolio positions that you want to replace.

Step 3: Click "Next Select Hedges" and either choose “Manually Enter Hedges” if you already know which assets you want to propose for the client, or “Run Hedging Screener” to discover assets that will do well in the scenario.

Step 4: If using “Run Hedging Screener,” then select the kinds of assets you want, plus optional criteria, and click "Show Hedging Options."

Step 5: Make sure your new allocations are the same type as your portfolio, i.e. dollar/share quantity portfolios are allocated in dollars and % models use percentages. Once done, click "Finalize and Review."

Step 6: You'll be returned to the Stress Testing page to compare the original portfolio with your new hedged version. From here, you can compare the two portfolios across different outcome or run a comparison report.