(A Top Pick July 10/17 Up 0.4%)   He might have been a little late on acquiring this, he thinks.   In 2008, when markets dropped over 40%, this went up 50%.  This is the best hedge for the market out there.  He does not own it now, instead he owns the 10 year bond equivalent.  He expects he will get back into this in the next 12 months. 

All 3 of his top picks have an element of defensiveness to them. This is the Long Bond in the US and his favourite way to hedge against equity risks. This one is negatively correlated with equity markets. Because it is denominated in US$, Canadian investors have 2 opportunities to make money. 1.) If we see the markets tumble, he expects long dated treasuries to do well because it probably means rates are coming down and there is a flood to safety. 2.) The US$ being the world’s reserve currency, whenever there is uncertainty in the markets, people will flood to the US$ and US treasuries.

There is a lot of volatility on these Puts, so you need to be aware of that, so they are not cheap. His inclination would be to do a Bear Call spread. This has a duration of about 14 or 15 right now, and if you get a 1% rise in rates, you will get a 15% drop in value of this, which would be good for the Puts. You need to recognize that the Puts are expensive for the amount of volatility that is inherent long-term on this product. If you are going to take a shot on it, he would Buy on the money, and probably 2 months out at best, mainly because they are expensive. Another way to do it would be to Sell a Call, and Buying a Call at a higher strike, just so you got limited risk. If the bonds go down or stay where they are, you get to keep the credit.