📝High-Yield And Financials Top Our Tail Hedging Screen: Barclays Strategy

Below we screen among a universe of 38 global equity indices and cross-asset ETFs with liquid options for the best equity downside hedges. In particular, i) we identify the top 10 drawdowns in any 2-month non-overlapping period since 2008 for global equities, and ii) calculate and rank based on the average payout (ratio of historical drawdown over current 2-month 25-delta puts). The heat map below shows the highest (green) and lowest (red) put payout ratios at current costs for top 10 global equity drawdowns.

We note that among hedging candidates with the highest potential payout ratios, 2-month 25- delta puts on HYG (US HY credit), XLF (Financials), and SX7E (Euro Stoxx Banks) offer the best 'bang for the buck', at current costs. - Barclays Strategy