Rethinking all-weather U.S. equity portfolio design.
The Risk Managed U.S. Growth strategy seeks to provide resilient, “all-weather” exposure to U.S. equities by embedding a diversified set of risk management techniques, including: systematic equity tilts; ensemble trend following; option-based hedges for left and right tails; and a U.S. Treasury futures overlay.
Realized returns in U.S. equity markets have become increasingly fat-tailed over the last two decades. The abnormal calm of 2017 and the chaos of March 2020 are symptoms of the same, underlying changes.
Our white paper Liquidity Cascades explores the drivers behind this change, including central bank intervention, the rise of indexed investing, and the growth of volatility-contingent strategies.
Together, they paint a picture of an increasingly volatile market environment, punctuated by melt-up and melt-down dynamics.
Diversifying your diversifiers.
In addition to diversifying across assets, investors should also diversify across how they manage risk. No single risk management technique is a panacea. Each approach may be effective or ineffective in different environments and offer varying degrees of protection provided, reliability, and cost.
When faced with uncertainty, we believe investors should diversify their diversifiers.
Most Effective
Least Effective
U.S. Treasuries
Flight-to-safety
Rising rate environment
Trend Following
Prolonged trends
Rapid reversals
Alternatives
Non-trending markets
Coincidental drawdowns
Tail Hedges
Sudden drawdowns
Shallow declines
Participation for the right tail.
Momentum tilts seek to generate alpha.
Trend following seeks to increase portfolio beta in positively trending markets.
Call options seek to create convex participation during sustained market rallies.
Treasury futures seek to add a second, diversifying source of returns.
Protection for the left tail.
High quality, low volatility tilts seek to preserve capital.
Trend following seeks to decrease portfolio beta during negatively trending markets.
Put options seek to create convex protection during market declines.
Treasury futures seek to benefit from “flight-to-safety” in fixed income.
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