Strategy Update: March 2026
Crashes are part of the game – panic isn’t: A pragmatic hedging philosophy for long-term investors.
REVIEW
THE FINANCIAL MARKETS IN FEBRUARY
In the global stock market, significant shifts are currently occurring between individual sectors. This development is particularly evident in the US. Since the beginning of the year, the technology sector has been one of the weakest areas in the market. As a result, its dominant position from previous years has noticeably lost importance. Within the technology sector, developments have recently diverged significantly. The differences between hardware and software companies have grown larger. While many hardware and semiconductor firms benefited from high investments in AI infrastructure, software companies came under increasing pressure. Reasons for this include growing price pressure in the cloud sector – but also rising AI fears. New powerful models like Claude demonstrate how quickly AI is evolving and can compete with existing software solutions. Investors are increasingly distinguishing clearly between companies that directly benefit from AI infrastructure and those whose business models could come under pressure from AI. Particularly affected are providers where AI is only integrated as an add-on function into existing software – and does not form the core of the offering. At the sector level, however, companies in the energy and utilities sectors continue to benefit. The high investment spending by large technology companies in data centers is leading to structurally increasing demand for electricity and grid capacity. Energy producers and grid operators have accordingly developed relatively strongly.
In the European automotive sector, Volkswagen provided a positive surprise with its quarterly figures. The company reported free cash flow of around 6 billion – significantly more than the market-expected 1.5 billion. This development provides arguments that the sector might be doing better on a valuation basis than many feared, even if structural challenges remain. On the other hand, the markets continue to be burdened by the US government‘s back-and-forth on trade policy. After the Supreme Court declared reciprocal tariffs invalid, new tariffs were immediately announced. This uncertainty prevents a sustainable easing in international trade.
For the Swiss export industry, no general relief is in sight as a result. Tariffs and the strong franc continue to be among the biggest concerns for companies. Additionally, the persistently volatile US trade policy is blocking investment decisions worldwide, which is reflected in more cautious order inflows.
Uncertainty has also increased in the private credit sector. Particularly among Business Development Companies (BDCs), nervousness regarding refinancing and credit quality has grown. Blue Owl Capital, a major asset manager in this area, faced significantly more redemption requests and had to restrict them in part. Investors in the Blue Owl Capital Corp II fund can no longer redeem their shares quarterly. Instead, they receive their capital back gradually through distributions. In the commodities sector, the positive momentum in precious metals continued. Gold has further established itself at a high level, benefiting from geopolitical uncertainties, structural budget deficits, and persistently high demand from central banks.
OUTLOOK
BENEATH THE SURFACE: SECTOR ROTATION, AI FEARS, AND A WORLD IN FLUX
The world doesn‘t appear calmer in February either. Geopolitical tensions, trade policy threat scenarios, and domestic political polarization continue to shape the headlines. Inflation remains a topic in the US. Above all, the services sector and private consumption continue to cause persistent price pressure. At the same time, the energy component is picking up again. The oil price (WTI) is currently around 66 USD per barrel and thus roughly at the level from twelve months ago. If the price holds at this level or rises further, the decline in inflation could slow down.
The US government‘s measures against illegal immigration have reduced net immigration to the US by around 80 percent. According to a Goldman Sachs analysis, this significantly changes the fundamentals of the labor market. Because fewer people are coming into the country, the labor supply is growing more slowly. As a result, significantly fewer new jobs are needed today to keep the unemployment rate stable. The hurdle for stability has accordingly become lower. Less growth can also indicate that economic momentum is waning. The latest minutes of the US central bank indicated a continued cautious, data-dependent stance. Almost all members supported keeping the key interest rate in the 3.50-3.75% range. Individual members, however, spoke out in favor of a 25 basis point cut. They pointed to the still restrictive monetary policy and possible risks in the labor market. At the same time, most members warned that the path back to the 2 percent inflation target could be slower and more uneven than hoped.
The risk that inflation will remain above target longer is still considered significant. Two rate cuts are expected by the end of the year, which could lower the key interest rate to 3.00-3.25%. In this environment, two trends from the previous year continue particularly strongly: a weaker US dollar and a structurally supportive gold environment. In the equity markets, the strong shifts between individual sectors are likely to continue for the time being. Some movements—particularly in the software sector— appear exaggerated in the short term, however. Not every business model is equally threatened by artificial intelligence. Market leaders with deeply integrated enterprise solutions and complex systems often have tight customer loyalty and high switching costs. Such structures cannot simply be replaced. Therefore, the blanket skepticism toward the sector seems partly exaggerated.
At the same time, it shows that the real dynamics often take place beneath the surface. Even if the S&P 500 barely moves at the index level, fluctuations in individual stocks and sectors are significant. The situation resembles an iceberg: only a small part is visible, while large shifts occur underneath. In addition to the importance of broad global diversification, we therefore consider the environment attractive for alternative strategies, particularly dispersion strategies. These benefit from the fact that the differences between winners and losers are increasing—a trend that has been evident since the beginning of the year and is additionally reinforced by sector rotation.
FOCUS
CRASHES ARE PART OF THE GAME – PANIC ISN’T: A PRAGMATIC HEDGING PHILOSOPHY FOR LONG-TERM INVESTORS
The stock market‘s strength lies in its foundation on the principle of compounding interest. This drives the market to rise over long periods. The longer your investment horizon, the higher the likelihood of positive returns—and the less critical the exact entry timing becomes.
History shows that corrections are as much a part of the stock market as the Amen in church. They are a standard aspect of investing. When choosing a suitable strategy— or your personal equity allocation—handling these corrections plays a key role. Technically, risk tolerance (how much volatility you can emotionally handle) and risk capacity (how much risk you can financially afford) together define your risk profile, which determines the appropriate equity share in an investor‘s portfolio. During rare but severe market corrections exceeding 20%, an investor‘s risk tolerance is truly tested. We call these strong downturns Tail Events. The name comes from their position at the far left tail of a distribution curve—the area occurring in only about 1–2% of cases. Past examples include Black Monday, the Dotcom Bubble, the Financial Crisis, and recently the COVID crisis. From our view, such events are neither reliably predictable nor worth trying to time. Advances in trading technology allow orders to execute much faster and in greater volume than 20 years ago. Meanwhile, the shift to passive investing doesn‘t distinguish between „good“ and „bad“ investments. This doesn‘t necessarily increase Tail Event frequency but can intensify their speed and severity. Even seasoned investors often lose sight of their long-term strategy in these phases, leading to panic sales—at highly unfavorable moments.
Even if you sell stocks at what seems the perfect time, a new challenge arises: When do you buy back in? Over the last 35 years, the U.S. stock market delivered an average annual return of 9.8% including dividends. Missing the 10 best months—for any reason—drops that to just 7.2% annually with the same stocks. Skipping only the 10 worst months would boost it to 14.1%. Simplified: Stay invested. Missing top months carries huge opportunity costs. Better: Seek a „insurance“— strategies that support you in the worst phases without abandoning equities entirely.
Our approach to such „insurance“ is surprisingly simple and deliberately pragmatic:
I. It must be a fixed strategic portfolio component— not a tool for market predictions. No one can reliably forecast Tail Events.
II. It shouldn‘t just „wobble less“ but ideally correlate negatively with equities in Tail Events, moving opposite to the stock market.
III. In a Tail Event, it should absorb a significant portion of losses with balanced asymmetry—like earthquake insurance, not household contents coverage (high premiums relative to massive potential protection).
IV. It must generate tangible liquidity during Tail Events for targeted reinvestment—ideally near market bottoms.
V. It should be transparent, understandable, and daily tradable for practical everyday use.
This philosophy powers our hedging solution, TailGuard, integrated into all our portfolios at all times. TailGuard invests daily in an options structure spanning thousands of individual positions. This repetition makes it as path-independent as possible; daily delta-hedging eliminates timing needs—the „insurance“ is always active and consistent. It‘s highly asymmetric, built on exchange-traded, daily liquid options—and TailGuard itself is daily buyable/sellable for investor flexibility.
TailGuard—or this hedging strategy—has existed since 2018 and has proven itself multiple times. During the COVID crisis, it nearly fully offset losses and generated high liquidity, which we reinvested stepwise—setting our mandates clearly apart. It worked reliably again around last year‘s „Liberation Day,“ when President Trump announced tariffs.
It‘s easy to discuss successes in hindsight. What have we learned with TailGuard over the last 7 years—what went wrong, and what did we adjust?
INITIALLY HIGH HEDGING COSTS
The early costs exceeded expectations due to distorted options market supply/demand from inverse VIX product failures (e.g., Credit Suisse‘s XIV products).
TOO FREQUENT ALLOCATION TWEAKS
We launched in 2018 with 6% TailGuard in a 100% equity portfolio but adjusted retrospectively too often. Now we use fixed thresholds (Gamma Inflection Points)—Tail- Guard auto-adjusts when the S&P 500‘s gamma profile hits spot levels.
LIQUIDITY LIMITS IN EXTREMES
The COVID crisis (March 12, 2020) taught us: Even the world‘s most liquid options market has bounds. After a +320% TailGuard surge since early March, we aimed to cut 20%—managing only 10% due to liquidity.
LIQUIDITY STRENGTH
A standout: Balanced portfolios held 15% liquidity via TailGuard during COVID. Reinvesting when others hesitated created unique opportunities.
LIMITS IN NORMAL CORRECTIONS
2022‘s drawdown clarified: TailGuard doesn‘t help in „regular“ declines—it even costs extra. Lesson: No cureall for slow bear markets.
SUCCESS BEYOND TRUE TAIL EVENTS
„Liberation Day“ 2025 (Trump tariffs) excelled despite not being a classic Tail Event—purely from sharp volatility spikes.
BEHAVIORAL SHIFTS IN CRISES
Key insight: Our crisis focus and client communication. During Tail Events, we zero in on TailGuard and liquidity reinvestment—while others recover. It dominates talks, building long-term trust and loyalty.
LESS TACTICS, MORE MOMENTUM
TailGuard lets us run higher equity allocations longer, with fewer profit-taking or tactical shifts—capturing extended market momentum. Caution: No blank check for excess risk, as 2022 proved.
HEDGING COSTS BREAKDOWN
Over 8 years: 1 Tail Event (COVID), 1 correction (2022), 1 vol event (Liberation Day 2025). Non-event years: ~0.4% annual costs in balanced mandates. COVID: +18% contribution; Liberation Day: +5%. Bottom line: Pays off with a COVID every 40 years or Liberation Day every 12.