The well-known TINA trade (there is no alternative) has driven capital inflows into equities to historically high levels. This is happening at a time when the real economy continues to sputter due to headwinds related to the COVID-19 pandemic.
This has been a key driver of the stock price rally we’ve seen in the midst of a pandemic with capital outflows from other sectors such as fixed income viewed as a risk for investors currently.
That said, central bank buying of government bonds has also helped fixed income assets along. This trend is something that many analysts believe will have to continue for some time. This has helped push down the yield on long bonds, helping bond investors that have held steady with their fixed income holdings through this pandemic.
One Exchange Traded Fund (ETF) I think provides investors with the best hedge and upside in this current environment is iShares 20+ Year Treasury ETF (NASDAQ:TLT). This fund has performed well in recent history, approximating the return of the S&P 500 over the past 30 years, with lower volatility.
This fund is an excellent hedge for Canadian investors not only due to its asset class focus but also its U.S. dollar denomination. The U.S. dollar has proven to be one of the most stable hedges compared to other traditional hedges like gold in recent decades. This makes this ETF a unique way for Canadians to hedge equity exposure now.
Invest wisely, my friends.
