Every economics student learns that when something becomes scarce, its value tends to rise. Historically, this principle applied to physical resources or even earnings growth during economic downturns. But today’s market participants—especially professional fund analysts—face a different type of scarcity: certainty.
The current economic landscape is marked by rapidly shifting policies and unpredictable outcomes. Analysts tracking companies and forecasting future earnings increasingly find their traditional models less effective. Metrics such as the NFIB Small Business Uncertainty Index and the Baker, Bloom, and Davis Economic Policy Uncertainty Index confirm this trend, both hovering near historic highs. As the ability to confidently predict company performance declines, analysts naturally adjust their approaches.
One direct response from fund managers to heightened uncertainty is an increased interest in volatility itself. Rather than simply trying to predict specific outcomes, many analysts adopt strategies designed to benefit from fluctuations in market sentiment or sudden price swings. Instruments like VIX futures or options become more appealing as these allow funds to directly capitalize on or hedge against abrupt changes in market volatility.
Alongside direct volatility exposure, professional investors have expanded the sophistication of their hedging practices. While straightforward hedging—such as holding cash or buying basic index put options—still occurs, funds are now increasingly deploying nuanced tactics like protective collars, spread strategies, or volatility arbitrage. These advanced methods allow analysts to fine-tune their portfolios’ sensitivity to risk, insulating performance from extreme, policy-driven swings.
Another observable shift is a practical rotation towards assets perceived as having inherently more stable and predictable cash flows. Fund analysts commonly rank equities based on the reliability of their earnings and dividends. In recent months, this screening process has led analysts away from speculative, growth-oriented technology names toward stable dividend payers or quality-focused companies trading at lower multiples. Non-technology companies with high dividend yields and consistent earnings growth have seen greater analyst interest precisely because they offer some insulation against unpredictability.
This strategic pivot is global, too. Fund analysts focusing on European markets apply similar logic, often identifying European equities offering higher dividend yields and predictable earnings at notable discounts compared to US tech stocks. While policy uncertainty may originate in specific regions, its influence reaches markets globally, making these asset allocation shifts a broad-based phenomenon.
Ultimately, analysts’ moves in response to today’s scarcity of certainty reflect practical risk management and portfolio construction principles. Rather than hoping for clearer signals from policymakers, analysts take tangible steps—buying volatility, engaging in more sophisticated hedging, and prioritizing stable earnings—to actively manage the uncertain environment they face.
