Hedges, privates and tax alpha: How investors are navigating record-high markets

What could be ahead for markets, and where are the biggest opportunities now? David Kostin, Chief US Equity Strategist for Goldman Sachs Research, Padi Raphael, the global head of Third Party Wealth Management within Goldman Sachs Asset Management, and Adam Siegler, who leads the One Goldman Sachs RIA strategy for Global Banking & Markets, discuss on the sidelines of Goldman Sachs’ RIA Professional Investor Forum in New York.

“Earnings are strong… but valuations are high,” Kostin says. “And I think that’s the biggest challenge that investors are grappling with.”

Participants at the conference, many of whom lead large independent investment advisory firms, were relatively cautious about the outlook for stocks over the next year. Among respondents to a pre-conference survey, 45% were bullish, while 33% reported feeling negative about markets.

“I’m a little intrigued about the 33%,” Raphael says. “That same cohort also responded that they were interested in hedging solutions to mitigate some of the downside risk in markets that they were anticipating.”

Raphael’s observation chimes with what Siegler is seeing in terms of investment product demand.

“We’ve seen tremendous growth in the structured notes market,” Siegler says. “A lot of these notes provide downside protection embedded in them, so that an investor can stay invested in the market but also have capital protection built into the structure.” He added that the growth is unsurprising in the current environment, “because people want the equity exposure on the upside [and] some hedging on the downside.”