Here’s How to Handle Markets Volatility in the Second Half of 2016

If the second half of 2016 looks anything like the first, investors are in for quite a volatile equity market. 'Markets always have some volatility, but it's been increasing the last couple of years,' said Nardin Baker, chief strategist at Guggenheim Partners, a global investment firm with $240 billion in assets under management. 'Events seem to cause a spike in volatility, volatility may fall and then stay at a somewhat higher level than in the past.' While it's anyone's guess as to what those events are going to be, Baker said investors should be cautious about taking on too much risk right now. The VIX, Wall Street's fear index, which measures volatility, traded at an average of 18 year-to-date. On Friday, the VIX traded near 14.8. Its high for the year was 28.14, reached on Feb. 11, the same day the blue-chip Dow Jones Industrial Average hit its 2016 low of 15,660,18. At the start of 2016, worries about China's economy sparked worries of a global recession, leading to a markets swoon. To grapple with volatility Baker stressed the importance of an optimized volatility strategy, where a portfolio's holdings are altered based on various market conditions. 'With optimized volatility, we measure which stocks have been rewarded in the recent past: high risk ones or low risk ones,' Baker said. 'Then we find an optimized portfolio that tilts towards those either high risk or low risk ones - whichever is being rewarded.' Baker said this changes the portfolio's risk exposure, but only after the market has started to reward risk. TheStreet's Scott Gamm reports from Wall Street.