November 25, 2020

An investment chief who crushed the market during the coronavirus crash says Trumps positive test has him even more cautious on stocks — and shares his strategy for hedging

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  • James McDonald, Hercules Investments founder and CEO, said President Trump’s positive COVID-19 test could “completely change the direction of the campaign,” and has added to his already cautious outlook on the stock market. 
  • The investor whose trading strategy led him to profit from the market’s volatility in March said he is now doubling down on his plan to be long volatility. 
  • McDonald’s advice to investors: Hedge your portfolio’s technology exposure through an ETF like the ProShares Ultra VIX Short-Term Futures ETF (UVXY). 

James McDonald, Hercules Investments founder and CEO, said Friday that the news of President Donald Trump contracting COVID-19 could “completely change the direction of the campaign,” and has added to his already cautious outlook on the stock market.

“President Trump contracting the coronavirus will elevate institutional money’s preparation for a Democratic White House and all the tax, trade, and budget implications that go along with it,” the investor said. “We expect institutional investors to start de-risking portfolios and increasing hedges in preparation for market volatility.”

McDonald profited from the market’s volatility at the height of the coronavirus crash in March. His stock index options trading strategy led him to earn up to 90% per trade. He said he has been long volatility since then, and news of Trump’s diagnosis has reinforced his strategy.

Read more: Peter Mallouk built a $34 million RIA into a $50 billion giant. The wealth-management CEO pinpoints 3 opportunities his firm is implementing in client portfolios, and shares 2 tips on how to accumulate wealth.

“We are not changing our investing strategy based on President Trump contracting the coronavirus and in fact, it forces us to double down on our strategy. We have been long volatility due to market overvaluation, the absence of fiscal relief from coronavirus-triggered economic pressure and uncertainty heading into the US presidential election,” he said.

McDonald’s advice for investors: Move to cash, or hedge a portfolio’s technology exposure through an ETF like the ProShares Ultra VIX Short-Term Futures ETF (UVXY) and futures contracts on the Nasdaq-100 Volatility Index (VOLQ) with 10% of a portfolio.

The ProShares Ultra VIX Short-Term Futures ETF leapt as high as 8% shortly after the Friday opening bell.