Equities are the growth engine of a well-diversified portfolio and a necessary component of a long-term financial plan. Historically, equities have rewarded the patient investor, but it has not been without volatility. Market drawdowns occasionally happen, stocks recover, and the cycle repeats. Reducing some of that downside risk can result in a smoother ride along the way and favorably impact asset accumulation over the long term.
Following are three different hedge strategies that may contribute to reducing risk and smoothing out returns over market cycles. They can be effectively used together as a “hedge basket,” or independently as a hedging tool in a diversified portfolio.
Launched in 1997, Defined Risk Strategy (DRS) was designed to offer long-term investors a way to pursue portfolio growth while seeking to define, or minimize, the risk of losing big with its three-step approach:
Founded in 2015, the Fund’s objective is long-term capital appreciation, pursued through:
ABR Dynamic Funds was founded in 2015. Its flagship 75/25 fund is a trend-following volatility strategy that utilizes systematic, model-driven exposures in a simple portfolio consisting of VIX futures, S&P futures, U.S. Treasuries, and cash.
The strategy incorporates a 75% allocation to long volatility exposure that targets significant gains in extended periods of high volatility (Crisis Alpha) along with a 25% allocation to short volatility exposure that seeks to harvest the volatility risk premium in normal markets. With both long and short exposures to volatility, the ABR 75/25 Volatility Strategy has the potential to produce positive returns in various market conditions.
EQIS is not affiliated with the money managers above. This is not a solicitation to buy or sell securities.
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