Wall Street Wrestles With Hedging Conundrum as Valuations Swell

Nathan Thooft is no market bear. His team at Manulife Investment Management, which oversees $160 billion, still holds a modest overweight in stocks. But as US markets jump from record to record, he’s been trimming big winners, buying bonds and adding a layer of protection with longer-dated options.

“Markets are getting overly complacent,” said Thooft, the chief investment officer of multi-asset solutions at the Boston-based firm. Over the past nine months, his team has steadily reduced exposure to high-yield credit, shifted toward non-US equities, and redeployed capital into safer corners. “We have had a massive rebound since the ...