FEX - Rebalancing In The Wake Of The U.S. Elections: How An Overlay Can Help

• VIX is reaching levels in the low 20's, levels we have not seen since before the March 2020 correction.
• Forward VIX levels (as observed in VIX futures contracts) showed an elevated expectation for volatility at the November expiration before the 2020 election. That effect has softened and shifted out to January, when Senate runoff elections in Georgia will determine the extent of consolidated partisan power driving the fiscal policy agenda.
• With much of the election uncertainty behind us, the news flow shifts more toward COVID-19 vaccine availability, treatment improvements and the degree of economic impairment that occurs before the epidemic is under control such that we can settle into a "new normal."
• Asset allocation policies attempt to define a portfolio that can survive all foreseeable outcomes, while meeting challenging return targets over the long term. An overlay provides a very efficient mechanism to rebalance.

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