Universa Investments hedge fund, led by billionaire investor Mark Spitznagel, posted a 4,144% return in a single quarter during the COVID-19 market crash in early 2020. Here's a look at how he did it.

What To Know: Spitznagel is known as a "doomsday" investor who correctly predicted the Great Financial Crisis in 2008 and specializes in profiting during broad market crashes caused by "black swan" events.

Spitznagel's Universa Investments fund's massive COVID-19 gains were revealed in a letter to clients that was leaked and seen by Business Insider. In the letter, Spitznagel highlighted the gains the fund had achieved through its tail-risk hedging strategy, while the broader markets and indexes suffered sharp declines.

What Is Tail-Risk Hedging?

Tail risk refers to the risk of extreme events occurring at the far ends, or tails, of a probability distribution. Tail-risk hedging is an investment strategy that aims to protect portfolios from extreme market downturns and frequently use a combination of financial instruments and strategies.

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It is common for a tail-risk hedging strategy to use put options, credit default swaps, Volatility index futures, U.S. Treasuries or a combination of any of the above.

Investors can find convenient exposure to a tail-risk hedge through the Cambria Tail Risk ETF TAIL which holds a portfolio of out-of-the-money put options on the S&P 500 Index, as well as U.S. Treasuries in order to mitigate risk.

The ProShares Trust Ultra VIX Short-Term Futures ETF UVXY provides 1.5x leveraged exposure to the daily performance of the S&P 500 VIX Short-Term Futures Index and can also be part of a tail-risk hedging strategy.

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