Market hedging shifts as valuations swell

Manulife Investment Management weighs risk by trimming winners and buying bonds while layering protection with longer-dated options.

Wall Street Wrestles With Hedging Conundrum as Valuations Swell

Nathan Thooft, chief investment officer of multi-asset solutions at Manulife Investment Management, oversees about $160 billion. His team remains modestly overweight in stocks but has trimmed large winners as U.S. markets push to new highs, while adding exposure to bonds and protection through longer-dated options. The move reflects a cautious stance in an environment of rising prices and strong returns.

Over the past nine months, the group has reduced exposure to high-yield credit, tilted toward non‑U.S. equities, and redeployed capital into safer corners. Thooft notes that the rebound since tariff-driven lows in April has been substantial, with valuations stretched in many markets and risk indicators at the lower end of the year’s range.

The article shows a practical balance between chasing returns and guarding against an eventual reversal. In a bull market that avoids pauses, hedging becomes a visible signal that risk teams expect volatility to return. The cautious posture underscores how asset allocators are prioritizing downside protection even as they stay invested.

This approach may dampen upside during continued rallies and could end up costing more if market momentum persists. It also raises questions about how much protection is affordable and how policy shifts or inflation pressures could reshape risk premia in the months ahead.

Highlights

As markets drift higher, risk management attention shifts from chasing returns to guarding against unpredictable shocks.