This document discusses strategies for hedging downside equity risk through the use of options and other tools. It begins by outlining why tail risk matters for pension funds and other investors given that equities can experience infrequent but large drawdowns. It then reviews various products that can provide downside protection, such as put options, volatility funds, and risk control strategies. Finally, it analyzes the costs and benefits of different approaches like purchasing put options or implementing volatility-controlled equity strategies combined with puts. The overall document aims to contrast options for hedging equity tail risk and protecting equity portfolios from severe losses.
This document summarizes several articles from an investment bulletin for endowments and foundations. The first article discusses how Case Western Reserve University addresses challenges in balancing short-term budget needs with long-term investment horizons through strategic and tactical asset allocation. The second article makes the case for tail risk protection based on current market valuations and volatility levels. The third article outlines the University of Chicago's framework for managing endowment risk through a risk-based investment model.
This document discusses risk-controlled investment strategies, specifically volatility control and risk parity approaches. It provides examples of how volatility control works by dynamically adjusting equity exposure in response to changing volatility levels. The benefits of volatility control for pension funds, insurance companies and individual investors are outlined. Case studies from different time periods demonstrate how volatility control can reduce drawdowns compared to a fixed market exposure. The document also introduces the concept of risk parity and how it aims to balance risk across asset classes rather than just allocating based on asset value. Implementation of volatility control and risk parity approaches are discussed.
The document discusses style premia investing, which refers to allocating to risk factors across asset classes that have historically generated significant risk-adjusted returns. It provides examples of academic research highlighting factors like value, momentum, and defensive styles that have persisted over decades. Practitioners like Neil Woodford and Warren Buffett are analyzed in the context of harvesting these style premia without explicitly targeting them. The document explores how style premia may represent alpha that is misclassified as beta. It also discusses evaluating strategies in different economic regimes, the evolution of separating alpha from beta, and comparing style premia to smart beta approaches. Finally, it analyzes ways for investors to access style premia through total return swaps on bank indices or asset managers
In this presentation, we review methods and best practices for the portfolio construction and evaluation process. The presentation covers risk and return estimation, mean-variance optimization as well as techniques for analyzing exposure to loss and wealth potential.
How do savers think about and respond to risk cisi sep 2015-2Alistair Haig
Many investors dislike the ups and downs of markets to the extent that they end up with little chance of meeting long-term savings goals. Using a unique dataset to show the disconnect between consumers' views on savings and investment risk, Alistair Haig and Professor David Blake reveal the extent of 'reckless conservatism' and explain how the industry might address it. CISI CPD presentation available on CISI TV
The document discusses portfolio management and modern portfolio theory. It defines key concepts like investment, speculation, asset allocation, risk, return, diversification, efficient frontier. Portfolio management aims to balance risk and return through diversification across different asset classes based on an investor's goals, risk tolerance and constraints. Modern portfolio theory provides a framework for optimizing risk-adjusted returns through careful selection of a combination of assets.
On Thursday, April 27th, 2017, we heard from Windham's own client consultant, Jon Kazarian about best methods and practices for the portfolio construction and evaluation process.
This document summarizes several articles from an investment bulletin for endowments and foundations. The first article discusses how Case Western Reserve University addresses challenges in balancing short-term budget needs with long-term investment horizons through strategic and tactical asset allocation. The second article makes the case for tail risk protection based on current market valuations and volatility levels. The third article outlines the University of Chicago's framework for managing endowment risk through a risk-based investment model.
This document discusses risk-controlled investment strategies, specifically volatility control and risk parity approaches. It provides examples of how volatility control works by dynamically adjusting equity exposure in response to changing volatility levels. The benefits of volatility control for pension funds, insurance companies and individual investors are outlined. Case studies from different time periods demonstrate how volatility control can reduce drawdowns compared to a fixed market exposure. The document also introduces the concept of risk parity and how it aims to balance risk across asset classes rather than just allocating based on asset value. Implementation of volatility control and risk parity approaches are discussed.
The document discusses style premia investing, which refers to allocating to risk factors across asset classes that have historically generated significant risk-adjusted returns. It provides examples of academic research highlighting factors like value, momentum, and defensive styles that have persisted over decades. Practitioners like Neil Woodford and Warren Buffett are analyzed in the context of harvesting these style premia without explicitly targeting them. The document explores how style premia may represent alpha that is misclassified as beta. It also discusses evaluating strategies in different economic regimes, the evolution of separating alpha from beta, and comparing style premia to smart beta approaches. Finally, it analyzes ways for investors to access style premia through total return swaps on bank indices or asset managers
In this presentation, we review methods and best practices for the portfolio construction and evaluation process. The presentation covers risk and return estimation, mean-variance optimization as well as techniques for analyzing exposure to loss and wealth potential.
How do savers think about and respond to risk cisi sep 2015-2Alistair Haig
Many investors dislike the ups and downs of markets to the extent that they end up with little chance of meeting long-term savings goals. Using a unique dataset to show the disconnect between consumers' views on savings and investment risk, Alistair Haig and Professor David Blake reveal the extent of 'reckless conservatism' and explain how the industry might address it. CISI CPD presentation available on CISI TV
The document discusses portfolio management and modern portfolio theory. It defines key concepts like investment, speculation, asset allocation, risk, return, diversification, efficient frontier. Portfolio management aims to balance risk and return through diversification across different asset classes based on an investor's goals, risk tolerance and constraints. Modern portfolio theory provides a framework for optimizing risk-adjusted returns through careful selection of a combination of assets.
On Thursday, April 27th, 2017, we heard from Windham's own client consultant, Jon Kazarian about best methods and practices for the portfolio construction and evaluation process.
This document outlines topics related to uncertainty, risk, and risk management. It will discuss measuring risk of single bonds and bond portfolios, sources of risk, the capital asset pricing model (CAPM), and CAPM econometrics. Specific topics include defining risk and risk aversion, probability distributions, expected returns, measures of dispersion like variance and standard deviation, the effect of diversification and correlation on portfolio risk, and the beta of a bond.
If lending Rs. 100 for one year at 10% interest, the return would be Rs. 110. However, if inflation rises to 112 from a base of 100, the purchasing power of Rs. 110 decreases. Borrowing and lending both carry risk from fluctuating currency exchange rates and inflation between countries. Operational risk also threatens returns when internal failures or external events disrupt business processes.
This document discusses key concepts related to uncertainty and consumer behavior, including probability, expected value, variability, risk aversion, and the value of information. It explains that expected value measures the average payoff across all possible outcomes, while variability measures how much the possible outcomes differ. Risk aversion refers to preferring a certain outcome over an uncertain one with the same expected value. The value of information is the increase in expected profits from having complete information rather than facing uncertainty.
This document compares five large cap mutual funds (Kotak 30, IDFC Imperial Equity Fund, Sundaram BNP Paribus select Focus, ICICI Prudential Dynamic Plan, Reliance Equity Advantage Fund, and Fortis Equity Fund) based on their objectives, beta, expense ratio, standard deviation, Sharpe ratio, and annual returns. The analysis found that Kotak 30 had the lowest beta at 0.81, Sundaram BNP Paribus select Focus had the lowest expense ratio at 2.01%, Kotak 30 and IDFC Imperial Equity Fund had the lowest standard deviations at 4.76 and 5.04 respectively, Sundaram BNP Paribus select Focus had the lowest Sharpe ratio at
Role of Enterprise Risk Management in Risk Based CapitalSonjai Kumar, SIRM
This presentation is given in the First South Asian Actuarial Conference held in Colombo on 12th and 13th July 2017.
The presentation is on how does risk management can help in optimizing the capital requirement in the life insurance industry
This document provides an overview and summary of Chapter 10 from the textbook "Principles of Managerial Finance" by Lawrence J. Gitman. Chapter 10 expands on capital budgeting techniques by considering risk factors such as sensitivity analysis, scenario analysis, and simulation. It also examines evaluating international projects and risk adjustment methods like certainty equivalents and risk-adjusted discount rates. The document provides learning resources for students on these topics, including a problem solver, study guide examples, and answers to chapter review questions to help students understand the concepts covered in the chapter.
This document discusses strategies for diversification and controlling risk in investments. It summarizes a typical pension fund asset allocation from JPMorgan that divides investments among equities, fixed income, real estate and alternatives. It then discusses the significant monetary and fiscal stimulus by governments and central banks. Finally, it advocates constructing portfolios with statistically independent risk factors to reduce volatility and enhance returns over market cycles.
On Wednesday, February 13th we were joined by Jon Kazarian, Director of Business Development at Windham Labs, for a conversation on Portfolio Construction and Evaluation.
Analysing private equity and venture capital funds through the lens of risk m...Izam Ryan
Can we interpret the role of PE/VC investments as a form of risk management?
Investments in PE/VC are usually thought of as being high risk / high return, But, studies also show that PE investments can reduce risk in certain situations.
The academic version of this paper was submitted in partial fulfilment of the requirements of the Imperial MBA degree and the Diploma of Imperial College London. The academic version of this paper was awarded a Distinction.
Portfolio management and asset allocation12111mqijahmani
This document discusses asset allocation and portfolio management. It defines asset allocation as determining optimal allocations across broad asset classes like stocks, bonds, and cash based on an investor's time horizon and risk tolerance. The importance of asset allocation is that different assets react differently to market conditions, allowing diversification that can enhance returns and reduce risk. Portfolio management aims to balance risk and return by matching investments to objectives through asset allocation and rebalancing over time. It outlines steps like setting objectives, developing a strategy, and evaluating performance.
Multi Asset Endowment Investment StrategyTaposh Roy
The Farhampton Endowment manages a $200MM fund for the University of New York. Their mission is to generate financial resources for research and new programs through a diversified portfolio. They provide a 4.25% annual gift to the university. Their portfolio manager team oversees different asset classes including private equity, equities, hedge funds, bonds, cash, commodities, and real estate.
Given current economic and market conditions, they recommend a portfolio with 20% in stocks, 28% in hedge funds, 15% in cash, 10% in bonds, 10% in private equity, 10% in real estate, and 7% in commodities. This portfolio aims to weather uncertain markets with stable, profitable returns
This document discusses portfolio analysis and cash flows. It provides examples of different types of investments and businesses someone could own, including franchises, mining companies, banks, and real estate. It then shows how someone could start investing small amounts regularly, such as emptying coins and low-denomination bills from their wallet each night. With regular small investments, it demonstrates how one could construct a diversified portfolio over time. The document also covers risk tolerance, strategies for passive versus active portfolio management, and techniques for analyzing stocks, bonds, and projects through valuation approaches and scenario analysis. It emphasizes cash flow analysis and stresses the importance of diversification and risk management.
In this power Point Presentation i will discuss about the Risk and Different types of Risk. when a Investor invest in a security than what type of Risk he have from the Security.
The document provides an overview of TAG Benefit Advisors' investment recommendations and process for selecting investment managers and constructing investment menus for 401(k) retirement plans. It describes their rigorous quantitative and qualitative manager selection process, the diversified range of recommended investment styles and funds, and commentary on each recommended manager.
The document discusses various types of risks faced by financial institutions including market risk, liquidity risk, credit risk, and operational risk. It provides an overview of how to manage these risks through a generic risk management approach of identifying, prioritizing, classifying, quantifying, and mitigating risks. Dynamic hedging is discussed as a technique to manage risks from guarantees on investment products through regular adjustments of hedge positions.
The document summarizes key points from presentations at the IFoA Pensions Conference 2015 held from June 24-26 in Glasgow. It discusses asset allocation strategies for pension funds, including integrating investment, funding and covenant approaches. It also covers alternative asset classes, systematic strategies like risk parity and volatility control, and diversifying across liquid and illiquid asset classes and risk premia. Reducing risk exposure to rates and inflation through hedging is highlighted as a quick win.
Asset Allocation in Taxable PortfoliosWindham Labs
On Tuesday, September 26th, we hosted Lucas Turton for a discussion on Asset Allocation in Taxable Portfolios. Lucas explored how to estimate the future value of a portfolio by considering assets on an after-tax basis, asset allocation and location for optimal tax efficiency, and best practices for tax loss harvesting and navigating the wash sale rule.
This document discusses the implementation of a dynamic de-risking pension risk management framework over the period from May 2008 to May 2013. It begins with an overview of the challenging economic landscape during that period. It then describes how the pension plan transitioned from an initial strategy with over 70% in equities and no clear risk management process, to a fully hedged strategy with 0% in equities and a well-defined risk management framework. Key steps included setting objectives, designing an efficient investment strategy, and ongoing monitoring. Through triggers linked to funding levels, the strategy de-risked the portfolio as the funding level improved to reach its targets of being fully funded at minimum risk.
This document provides an overview of Redington, an investment consulting firm, and its manager research process. Redington divides investments into seven steps according to liquidity and risk, and evaluates managers according to four filters: expected returns, risk assessment, relative value, and implementation challenges. The manager research team uses eVestment to monitor over 40,000 strategies and conducts regular searches across asset classes including LDI, equities, credit, and alternative investments like secured leases. Redington aims to help pension clients achieve full funding through its seven-step framework and ongoing manager due diligence.
CIO Report - Investing in a World without Credit SpreadsRedington
- Asset allocations over the past 5 years have relied on credit spreads, but credit spreads are now declining and may not be a reliable source of returns going forward
- Without attractive credit spreads, asset allocation will depend more on returns from liquid markets, which are more uncertain
- There are four approaches that can help manage but not remove this uncertainty: risk-based asset allocation, diversification across asset classes, diversification within asset classes, and manager skill
- Combining these four approaches provides the best risk-adjusted returns, but incorporating some of the approaches still provides most of the benefits
The document discusses terminal portfolios and the end game for pension schemes. It provides:
1) An overview of terminal portfolios, which aim to allow schemes to continue paying benefits without deterioration to funding by targeting a low-risk asset allocation once fully funded.
2) Considerations for constructing a terminal portfolio, including setting required returns based on the discount rate and buffer targets, and how asset allocations may vary based on funding levels and credit spread assumptions.
3) The role of credit assets in terminal portfolios to generate returns above the required level while managing risks like liquidity, reinvestment and compatibility with potential buyouts.
This document describes a proposed dual strategy equity derivatives fund. It would pursue two complementary strategies - a long-biased options strategy and a quantitative volatility strategy. The strategies are meant to generate high returns while limiting volatility and correlation to markets. Key details include the fund's structure, fee terms, hypothetical performance metrics for different strategy allocations, budget projections, bios of the fund manager and quantitative manager, and contact information. A valuation model is also outlined.
This document outlines topics related to uncertainty, risk, and risk management. It will discuss measuring risk of single bonds and bond portfolios, sources of risk, the capital asset pricing model (CAPM), and CAPM econometrics. Specific topics include defining risk and risk aversion, probability distributions, expected returns, measures of dispersion like variance and standard deviation, the effect of diversification and correlation on portfolio risk, and the beta of a bond.
If lending Rs. 100 for one year at 10% interest, the return would be Rs. 110. However, if inflation rises to 112 from a base of 100, the purchasing power of Rs. 110 decreases. Borrowing and lending both carry risk from fluctuating currency exchange rates and inflation between countries. Operational risk also threatens returns when internal failures or external events disrupt business processes.
This document discusses key concepts related to uncertainty and consumer behavior, including probability, expected value, variability, risk aversion, and the value of information. It explains that expected value measures the average payoff across all possible outcomes, while variability measures how much the possible outcomes differ. Risk aversion refers to preferring a certain outcome over an uncertain one with the same expected value. The value of information is the increase in expected profits from having complete information rather than facing uncertainty.
This document compares five large cap mutual funds (Kotak 30, IDFC Imperial Equity Fund, Sundaram BNP Paribus select Focus, ICICI Prudential Dynamic Plan, Reliance Equity Advantage Fund, and Fortis Equity Fund) based on their objectives, beta, expense ratio, standard deviation, Sharpe ratio, and annual returns. The analysis found that Kotak 30 had the lowest beta at 0.81, Sundaram BNP Paribus select Focus had the lowest expense ratio at 2.01%, Kotak 30 and IDFC Imperial Equity Fund had the lowest standard deviations at 4.76 and 5.04 respectively, Sundaram BNP Paribus select Focus had the lowest Sharpe ratio at
Role of Enterprise Risk Management in Risk Based CapitalSonjai Kumar, SIRM
This presentation is given in the First South Asian Actuarial Conference held in Colombo on 12th and 13th July 2017.
The presentation is on how does risk management can help in optimizing the capital requirement in the life insurance industry
This document provides an overview and summary of Chapter 10 from the textbook "Principles of Managerial Finance" by Lawrence J. Gitman. Chapter 10 expands on capital budgeting techniques by considering risk factors such as sensitivity analysis, scenario analysis, and simulation. It also examines evaluating international projects and risk adjustment methods like certainty equivalents and risk-adjusted discount rates. The document provides learning resources for students on these topics, including a problem solver, study guide examples, and answers to chapter review questions to help students understand the concepts covered in the chapter.
This document discusses strategies for diversification and controlling risk in investments. It summarizes a typical pension fund asset allocation from JPMorgan that divides investments among equities, fixed income, real estate and alternatives. It then discusses the significant monetary and fiscal stimulus by governments and central banks. Finally, it advocates constructing portfolios with statistically independent risk factors to reduce volatility and enhance returns over market cycles.
On Wednesday, February 13th we were joined by Jon Kazarian, Director of Business Development at Windham Labs, for a conversation on Portfolio Construction and Evaluation.
Analysing private equity and venture capital funds through the lens of risk m...Izam Ryan
Can we interpret the role of PE/VC investments as a form of risk management?
Investments in PE/VC are usually thought of as being high risk / high return, But, studies also show that PE investments can reduce risk in certain situations.
The academic version of this paper was submitted in partial fulfilment of the requirements of the Imperial MBA degree and the Diploma of Imperial College London. The academic version of this paper was awarded a Distinction.
Portfolio management and asset allocation12111mqijahmani
This document discusses asset allocation and portfolio management. It defines asset allocation as determining optimal allocations across broad asset classes like stocks, bonds, and cash based on an investor's time horizon and risk tolerance. The importance of asset allocation is that different assets react differently to market conditions, allowing diversification that can enhance returns and reduce risk. Portfolio management aims to balance risk and return by matching investments to objectives through asset allocation and rebalancing over time. It outlines steps like setting objectives, developing a strategy, and evaluating performance.
Multi Asset Endowment Investment StrategyTaposh Roy
The Farhampton Endowment manages a $200MM fund for the University of New York. Their mission is to generate financial resources for research and new programs through a diversified portfolio. They provide a 4.25% annual gift to the university. Their portfolio manager team oversees different asset classes including private equity, equities, hedge funds, bonds, cash, commodities, and real estate.
Given current economic and market conditions, they recommend a portfolio with 20% in stocks, 28% in hedge funds, 15% in cash, 10% in bonds, 10% in private equity, 10% in real estate, and 7% in commodities. This portfolio aims to weather uncertain markets with stable, profitable returns
This document discusses portfolio analysis and cash flows. It provides examples of different types of investments and businesses someone could own, including franchises, mining companies, banks, and real estate. It then shows how someone could start investing small amounts regularly, such as emptying coins and low-denomination bills from their wallet each night. With regular small investments, it demonstrates how one could construct a diversified portfolio over time. The document also covers risk tolerance, strategies for passive versus active portfolio management, and techniques for analyzing stocks, bonds, and projects through valuation approaches and scenario analysis. It emphasizes cash flow analysis and stresses the importance of diversification and risk management.
In this power Point Presentation i will discuss about the Risk and Different types of Risk. when a Investor invest in a security than what type of Risk he have from the Security.
The document provides an overview of TAG Benefit Advisors' investment recommendations and process for selecting investment managers and constructing investment menus for 401(k) retirement plans. It describes their rigorous quantitative and qualitative manager selection process, the diversified range of recommended investment styles and funds, and commentary on each recommended manager.
The document discusses various types of risks faced by financial institutions including market risk, liquidity risk, credit risk, and operational risk. It provides an overview of how to manage these risks through a generic risk management approach of identifying, prioritizing, classifying, quantifying, and mitigating risks. Dynamic hedging is discussed as a technique to manage risks from guarantees on investment products through regular adjustments of hedge positions.
The document summarizes key points from presentations at the IFoA Pensions Conference 2015 held from June 24-26 in Glasgow. It discusses asset allocation strategies for pension funds, including integrating investment, funding and covenant approaches. It also covers alternative asset classes, systematic strategies like risk parity and volatility control, and diversifying across liquid and illiquid asset classes and risk premia. Reducing risk exposure to rates and inflation through hedging is highlighted as a quick win.
Asset Allocation in Taxable PortfoliosWindham Labs
On Tuesday, September 26th, we hosted Lucas Turton for a discussion on Asset Allocation in Taxable Portfolios. Lucas explored how to estimate the future value of a portfolio by considering assets on an after-tax basis, asset allocation and location for optimal tax efficiency, and best practices for tax loss harvesting and navigating the wash sale rule.
This document discusses the implementation of a dynamic de-risking pension risk management framework over the period from May 2008 to May 2013. It begins with an overview of the challenging economic landscape during that period. It then describes how the pension plan transitioned from an initial strategy with over 70% in equities and no clear risk management process, to a fully hedged strategy with 0% in equities and a well-defined risk management framework. Key steps included setting objectives, designing an efficient investment strategy, and ongoing monitoring. Through triggers linked to funding levels, the strategy de-risked the portfolio as the funding level improved to reach its targets of being fully funded at minimum risk.
This document provides an overview of Redington, an investment consulting firm, and its manager research process. Redington divides investments into seven steps according to liquidity and risk, and evaluates managers according to four filters: expected returns, risk assessment, relative value, and implementation challenges. The manager research team uses eVestment to monitor over 40,000 strategies and conducts regular searches across asset classes including LDI, equities, credit, and alternative investments like secured leases. Redington aims to help pension clients achieve full funding through its seven-step framework and ongoing manager due diligence.
CIO Report - Investing in a World without Credit SpreadsRedington
- Asset allocations over the past 5 years have relied on credit spreads, but credit spreads are now declining and may not be a reliable source of returns going forward
- Without attractive credit spreads, asset allocation will depend more on returns from liquid markets, which are more uncertain
- There are four approaches that can help manage but not remove this uncertainty: risk-based asset allocation, diversification across asset classes, diversification within asset classes, and manager skill
- Combining these four approaches provides the best risk-adjusted returns, but incorporating some of the approaches still provides most of the benefits
The document discusses terminal portfolios and the end game for pension schemes. It provides:
1) An overview of terminal portfolios, which aim to allow schemes to continue paying benefits without deterioration to funding by targeting a low-risk asset allocation once fully funded.
2) Considerations for constructing a terminal portfolio, including setting required returns based on the discount rate and buffer targets, and how asset allocations may vary based on funding levels and credit spread assumptions.
3) The role of credit assets in terminal portfolios to generate returns above the required level while managing risks like liquidity, reinvestment and compatibility with potential buyouts.
This document describes a proposed dual strategy equity derivatives fund. It would pursue two complementary strategies - a long-biased options strategy and a quantitative volatility strategy. The strategies are meant to generate high returns while limiting volatility and correlation to markets. Key details include the fund's structure, fee terms, hypothetical performance metrics for different strategy allocations, budget projections, bios of the fund manager and quantitative manager, and contact information. A valuation model is also outlined.
Asset intensive reinsurance has been a hot topic in the marketplace, in particular reinsurance for fixed annuities, variable annuities and indexed annuities.
With variable annuities in particular, the products have been written recently specifically combat the difficulties posed by the low interest rate environment. With GAAP ROEs as healthy as ever, solution providers (banks/reinsurers) are looking to enter into the variable annuity reinsurance market to get their "share of the pie".
The asset intensive reinsurance world is evolving rapidly, and I will be presenting this evolution for certain high-profile products during the Valuation Actuary Symposium on 8/31 at 10:00 AM.
Hope to see many of you friendly faces there!
The document provides an overview of the DSP Equity Savings Fund, an open-ended hybrid scheme that invests in equity, arbitrage, and debt instruments. The fund seeks to provide capital appreciation with lower volatility by maintaining equity exposure between 20-40% while hedging risk through options strategies. It aims to target lower drawdowns, limit risk of permanent capital loss, take a countercyclical approach, focus on absolute returns, and maintain a multi-asset portfolio to generate returns higher than benchmarks or inflation over the long run.
This document discusses volatility controlled investing strategies for defined benefit and defined contribution pension plans. It begins with an overview of the challenges pension plans face in generating returns while managing downside risk. It then provides examples of how volatility control strategies work by varying equity market exposure in response to changing volatility levels. Key benefits of volatility control for pension plans include downside protection, lower costs compared to other protection strategies, and better risk-adjusted returns than passive equity exposure. The document also addresses common questions about volatility control and provides references for further reading.
What are the Current Dynamics Driving UK Pensions Investment?Redington
1) The document discusses various strategies and assets for UK pension investment, focusing on liability driven investments (LDI).
2) It provides examples of pension funds that implemented LDI strategies at different times, outlining how their allocations changed in response to market events.
3) The document promotes the use of a Pension Risk Management Framework and "Flight Plan" tool to help pension funds develop clear investment strategies and evaluate opportunities based on their objectives and constraints.
The document summarizes the key differences between a Cashflow Driven Investment (CDI) strategy and a Return Driven Investment (RDI) strategy for pension schemes. A CDI strategy aims to match asset cashflows to liability cashflows like insurers, focusing on low-risk credit assets. However, pension schemes have different objectives than insurers. An RDI strategy targets higher returns through diversified assets like equities and credits. It is more adaptable to changing circumstances over time. The document argues that for many schemes, an RDI approach can improve member security through higher expected returns while still managing risk appropriately.
Investment pattern & portfolio management of investors in delhisamankit
This document analyzes investment patterns and portfolio management among investors in Delhi. It aims to understand investors' motives, preferred investment options, and risk tolerance. The research methodology involves a survey of 75 investors in Delhi across different professions and income levels. Key findings include that the most preferred investment options are mutual funds, stocks, and fixed deposits. Investors generally have a moderate risk tolerance and allow a medium-term time frame for investments. The document provides suggestions for insurance company Aviva to improve awareness, trust, and focus on medium-long term investment products.
Investment pattern & portfolio management of investors in delhisamankit
This document presents research on the investment patterns and portfolio management of investors in Delhi. The objectives are to understand investors' motives, their awareness of risk associated with investment instruments, and their preferred investment options. The research methodology included a descriptive design with a non-probability sample of 75 investors in Delhi. Key findings include that most investors have an annual income between Rs. 5-10 lakhs and invest 10-20% annually. Their most preferred investment is mutual funds, followed by stocks and bank deposits. Investors have a medium to long-term investment horizon and moderate risk tolerance.
A large UK pension scheme with a £3.5 billion deficit sought to reduce risk while maintaining returns. They implemented a volatility-controlled equity index with a put option to limit downside risk. This reduced equity risk exposure from 30% to 10% while delivering equity-like returns with lower volatility. It also lowered the cost of downside protection compared to purchasing puts directly on a passive equity index. The scheme's risk-return profile improved, allowing it to better fund its deficit over time with lower vulnerability to market stress.
Technical Provisions consultation Supporting Information 19 July 2023.pdfHenry Tapper
This document provides supporting information for a consultation on the proposed methodology and assumptions for the USS Retirement Income Builder Section's 2023 valuation. It discusses the Integrated Risk Management Framework used, including the key elements of self-sufficiency, Affordable Risk Capacity, Available Risk Capacity, Limit of Reliance, and Transition Risk. It also provides details on the employer covenant analysis, investment modelling assumptions, membership data, and reconciliation from the 2020 valuation. Metrics of Actual Reliance and Target Reliance are presented within green status.
Chapter 4 Investment Analysis and Portfolio ManagementMahyuddin Khalid
The document discusses Islamic investment principles including asset allocation and portfolio management. It defines asset allocation as the process of distributing wealth across different asset classes and countries. It then outlines the individual investor life cycle with four phases: accumulation, consolidation, spending, and gifting. The portfolio management process is described as having four steps: constructing a policy statement, studying financial conditions, constructing the portfolio, and monitoring. It emphasizes that asset allocation is the major factor driving portfolio risk and return, with 90% of returns explained by this decision.
The document provides an overview of the DSP Regular Savings Fund, a hybrid fund that seeks to provide capital appreciation with lower volatility. It invests 75-90% in debt instruments including sovereign and corporate bonds, and 10-25% in equities. The fund aims to generate returns higher than medium-term debt funds over 3-5 years while limiting downside risk. It takes a countercyclical approach to equity allocation, increasing it when markets decline. The fund is suitable for medium-term investors seeking income and capital growth through a diversified multi-asset portfolio.
1. The document provides an overview of the DSP Regular Savings Fund, a multi-asset fund that seeks to provide capital appreciation with lower volatility through allocations to equity, debt, REITs, and InvITs.
2. The fund aims for a balanced risk-return profile similar to a conservative hybrid fund with equity exposure between 10-25% and debt exposure between 75-90%.
3. The fund focuses on generating absolute returns through a value investing approach, limiting downside risk, and counter-cyclical allocations during market cycles.
Book Recommendation: Waring, M. Barton. Pension Finance – Putting the Risks and Costs of Defined Benefit Plans Back under Your Control. New Jersey: John Wiley & Sons, Inc., 2012. Print
Similar to Teach-In Presentation: Protect Your Assets - Equity Downside Hedging, 16 Sep 2014 (20)
Technology and Investing - Where to from here?Redington
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms.
The Impact of Technology on the Pensions IndustryRedington
The impact of technology on the pensions industry (past, present, future).
Prezi version: https://prezi.com/aadascppmnor/the-impact-of-technology-on-the-pensions-industry
21st Century Schemes – Deciding on the right scheme design for your membersRedington
This document discusses considerations for designing retirement schemes for members. It highlights collecting data on members' current pension pots, contributions, ages and where they are in their retirement journey. The goal is to help employees securely plan their financial futures through empowering individual decision making with easy, attractive, social and timely communication. Technology like personalized pension apps and emotional connections are seen as ways to improve pension savings success.
"Hi Alexa, how should I save for my pension?"Redington
The document discusses various ways for people to save effectively for their pension. It recommends understanding where you are in your retirement journey, engaging members through education and technology, and using behavioral insights and personalized approaches to empower people to make good savings decisions. Gamification and simple ideas can help communicate complex choices. Members have different risk profiles and a one-size approach does not fit all, so pensions should be tailored individually. The goal is to help people save and invest adequately for a secure retirement.
Why we need to teach our children how to budget, save, invest and give backRedington
The document discusses the benefits of meditation for reducing stress and anxiety. Regular meditation practice can help calm the mind and body by lowering heart rate and blood pressure. Making meditation a part of a daily routine, even if just 10-15 minutes per day, can have mental and physical health benefits over time by helping people feel more relaxed and focused.
Making Decisions; An Effective Trustee BoardRedington
What are the 10 core strengths of a Trustee Ninja?
1. Passion
2. Trust
3. Open Minded
4. Intellectual Curiosity
5. Numeracy
6. Collegiate
8. Prepare to challenge and be challenged
7. Seeing the wood for the trees
9. Prepare to stand out from the crowd
10. Make decisions and live with the consequences
Critical Friends - The Need for Straight TalkingRedington
This document summarizes a presentation on providing constructive feedback between pension trustees and their advisers. It discusses the need for "critical friends" to have honest conversations and help each other improve. A survey found that advisers rarely give critical feedback to trustees. The presentation advocates using a framework called "Radical Candor" to build feedback into the relationship through open and caring criticism. It encourages trustees and advisers to find a trusted partner to help them strengthen governance through respectful feedback.
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms for those who already suffer from conditions like depression and anxiety.
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"I haven’t told you the best part,” said Grandpa. “When you save your acorns, they don’t just sit there and wait for you. They grow into trees, and the trees give you more and more acorns.”
Join Oliver and Amelia as Grandpa teaches them the importance of saving. They hear the story of how the bears saved the monkeys. They learned about the consequences of wasting bananas, sharing berries and saving acorns. The best part is the acorns they save can grow over time into trees with more acorns.
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Is Your Property Allocation RIght for You?Redington
The document discusses the impact of Brexit on the UK property market and different property investment options. It notes that commercial rental markets are expected to weaken due to uncertainty after Brexit. It then discusses suspensions of redemptions in some UK property funds and notes that institutional money funds have experienced less redemption pressure. Finally, it outlines different property investment strategies and their risk-return profiles that may be suitable depending on whether a pension fund is in the opening, middle, or end stage of its funding journey.
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This document summarizes the pension system and challenges in Europe. It discusses the three pillars of pension systems: social security, employer pensions, and personal pensions. It then focuses on defined contribution pensions in the UK, including typical plan designs, contributions, taxation, and investment options. The document notes challenges like lack of financial literacy and planning. It proposes solutions such as personal retirement planning, lifecycle investment strategies, and education initiatives to increase participation and knowledge.
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China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
Dr. Alyce Su Cover Story - China's Investment Leadermsthrill
In World Expo 2010 Shanghai – the most visited Expo in the World History
https://www.britannica.com/event/Expo-Shanghai-2010
China’s official organizer of the Expo, CCPIT (China Council for the Promotion of International Trade https://en.ccpit.org/) has chosen Dr. Alyce Su as the Cover Person with Cover Story, in the Expo’s official magazine distributed throughout the Expo, showcasing China’s New Generation of Leaders to the World.
3. Teach-in
Equity Downside Hedging
September 2014
Introduction
3
“Frankly, we have just taken a very important decision with a view to tackling the crisis. As I have said, this is a fully effective backstop removing tail risk for Europe, and I would not want to speculate on other measures for the time being at least.”
Mario Draghi ECB Press Conference September 2012
4. Teach-in
Equity Downside Hedging
September 2014
Introduction
4
•Equities continue to rally, but investors remain wary of risks
•Opportunities have decreased in other asset classes (notably credit)
•Driven an interest in tail risk hedging approaches (although in some ways this is nothing new)
•One illustration is the growth in VIX futures contracts volume (below)
Growth in VIX futures volume (total open interest in number of contracts)
Source: CBOE
5. Teach-in
Equity Downside Hedging
September 2014
Contents
5
•Background
•Equity risk
•Why
•As a pension fund, why does tail risk matter
•What
•What are the products/strategies that are useful
•How
•How can the available approaches be employed in practice
6. Teach-in
Equity Downside Hedging
September 2014
The downside risk of equities
6
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Daily return (%)
7. Teach-in
Equity Downside Hedging
September 2014
The downside risk of equities
7
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1927
1940
1954
1968
1981
1995
2009
Index Drawdown from prior peak (%)
Equities tend to experience infrequent large drawdowns (>30% +) Even ignoring the early part of the 20th century this still happens frequently enough to be a problem in a portfolio context
8. Teach-in
Equity Downside Hedging
September 2014
The downside risk of equities
8
Equity performance, even over long periods of time can be influenced by large falls
http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html?_r=0
9. Teach-in
Equity Downside Hedging
September 2014
Why invest in equities?
9
•Very long term (100yrs+) evidence of a positive risk premium
•Can experience significant falls in value (30%+ over multi-year periods)
•Liquid
11. Teach-in
Equity Downside Hedging
September 2014
Why does downside risk matter? A definition of Tail Risk
11
An event outside the confidence interval used by an institution ….. That makes the investment objectives of the institution unlikely to be achieved
12. Teach-in
Equity Downside Hedging
September 2014
Example Pension Schemes and their objectives (1)
12
Objective
Primary Funding Objective
Expected return Gilts + 2.0%p.a.
Required return to 2037 Gilts + 2.0%p.a.
Risk
1 Year 95% VaR £122m
1 Year Required Return at Risk 0.8%
0
200
400
600
800
1,000
1,200
1,400
£mm
Assets
Liabilities
13. Teach-in
Equity Downside Hedging
September 2014
How can downside risk affect the objectives (1)
13
Strategy
Starting Position
Required Return % p.a. (Over Gilts)
Full Funding Date
Funding Level
Current
Base
2.0
31/03/2037
71%
-10% fall in assets
2.7
31/03/2037
64%
-15% fall in assets
3.2
31/03/2037
60%
-20% fall in assets
3.6
31/03/2037
56%
0
200
400
600
800
1,000
1,200
1,400
£mm
Assets
Liabilities
Assets realised
In this example, a fall in assets of any more than 10% throws the scheme off its flightplan, meaning a revised full funding date or increased contributions
14. Teach-in
Equity Downside Hedging
September 2014
Example Investor and their objectives (2)
14
•Pension fund or SWF
•Targeting real return of +3-4% over long term (rolling 5 year periods)
100%
120%
140%
160%
180%
200%
220%
240%
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
15. Teach-in
Equity Downside Hedging
September 2014
How can downside risk affect the objectives (2)
15
•A 15% capital loss can make a 5 year excess return target start to look pretty unachievable
•Even rolling the time period back to 20 years the returns required to meet the same objective are c1%p.a. higher
100%
120%
140%
160%
180%
200%
220%
240%
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
5 year periods
Excess Return Target >>
3.0%
4.0%
5.0%
-10%
5.3%
6.3%
7.3%
Capital Drawdown >>
-15%
6.5%
7.5%
8.6%
-20%
7.8%
8.9%
9.9%
-25%
9.3%
10.3%
11.4%
20 year periods
Excess Return Target >>
3.0%
4.0%
5.0%
-10%
3.6%
4.6%
5.6%
Capital Drawdown >>
-15%
3.9%
4.9%
5.9%
-20%
4.2%
5.2%
6.2%
-25%
4.5%
5.6%
6.6%
17. Teach-in
Equity Downside Hedging
September 2014
Tail risk hedges?
17
Put options
Options collar
Put spread
US treasuries
Commodities
Gold
CTA Managers
Smart Beta
Low volatility stocks
Risk control
VIX
Variance
Gilts
Cash
DGF
Gilts
CDS
Short index futures
Tail risk funds
18. Teach-in
Equity Downside Hedging
September 2014
The three layers of portfolio risk management
18
“Risk Management should be put in place in the good times to have most effect in the bad times”
Diversification
Downside protection
Risk Control
19. Teach-in
Equity Downside Hedging
September 2014
Improving risk adjusted returns
19
We use the Sharpe ratio* as the basis for assessing risk adjusted return. It isn’t a perfect measure, but is a reasonable starting point for assessing assets on a risk adjusted basis
Effect on Sharpe ratio
Sharpe Ratio
Single Asset Class or Risk Premia
0.1-0.2
Diversified Portfolio
Risk Control
Downside Protection
0.2-0.25
0.25-0.35
0.3-0.4
* Sharpe ratio is equal to the excess return (over cash) divided by the volatility
20. Teach-in
Equity Downside Hedging
September 2014
Diversification is by itself a powerful way of reducing drawdowns – but it isn’t protection
20
Source: “What a CAIA Member Should Know” Understanding Drawdowns Galen Burkhard Senior Advisor, Newedge USA, LLC.Ryan Duncan Global Co-Head, Newedge Alternative Investment Solutions’ Advisory Group Lianyan Liu Quantitative Analyst, Newedge Alternative Investment Solutions’ Advisory Group
For a 0.5 sharpe ratio strategy the expected max 10 year drawdown is 2.5x volatility (ie, 25% for a 10% volatility strategy)
For a more basic 0.15 sharpe strategy – perhaps a single asset class, the max drawdown is greater at around 3.5 volatility units
21. Teach-in
Equity Downside Hedging
September 2014
Tail risk hedges?
21
Put options
Options collar
Put spread
US treasuries
Commodities
Gold
CTA Managers
Smart Beta
Low volatility stocks
Risk control
VIX
Variance
Cash
DGF
Gilts
CDS
Short index futures
Tail risk funds
Explicit protection
Implicit protection
Risk Control
Diversifiers
23. Teach-in
Equity Downside Hedging
September 2014
Basic option strategies
23
•The simplest direct downside protection strategy is to buy a put option on the underlying equity holding
•The strike and maturity can be chosen/varied
•Typically most liquidity is in the 3 month maturity, but pension funds tend to look at periods of 1 year of longer
•The premium of these options will vary with the market level of implied volatility, making them quite variable through time
•The price of the option will also reflect the level of skew in the market, meaning that premiums for downside protection can optically “look” expensive when compared to the expected level of volatility
24. Teach-in
Equity Downside Hedging
September 2014
Basic option strategies
24
•Obvious enhancements to basic option strategies
1.Split the maturities such that the “regret-risk” of having the payout determined on a particular day is minimized
2.Have a rolling program to maintain the split of maturities through time
3.Trade longer maturity options and have a framework to sell these options before expiry (avoiding the decay in the final few months of the options’s life)
4.Adopt a program of call selling (as well as put buying) – a popular strategy is to sell 2-4 week calls and buy 12 month puts
•More sophistication can reduce carry costs, but starts to look more like a quantitative trading strategy
25. Teach-in
Equity Downside Hedging
September 2014
Relevant anecdotes from the DGF universe
25
•We reviewed the Diversified Growth Fund (“DGF”) market in December 2013 (work updated in June 2014)
•DGF managers generally have a brief to generate equity like returns of 3-5% above LIBOR (or inflation) with half the volatility of equities
•We reviewed around 15 managers with around £100bn total aum
•13 of 15 were using variants of the above options structures, variants included:
•Rolling put protection
•Rolling collars on low volatility indices
•Relative value trades using call options (call vs call)
•Variance swaps relative value (China vs US)
•VIX
26. Teach-in
Equity Downside Hedging
September 2014
Insurance – but at what price ? Carry costs of the basic approaches
26
•It is important to try and evaluate the impact on portfolio expected return of a given protection strategy, although it is hard to be precise about this
•Two possible approaches
•Use historical backtesting/simulation (limited data, accusations of data- mining)
•Re-price options using real-world (as opposed to risk neutral) variables
•We can draw some general conclusions around carry costs
27. Teach-in
Equity Downside Hedging
September 2014
Insurance – but at what price ? Carry costs of the basic approaches
27
Option Premium (%) September 2014
Historic Carry p.a. [min/max]
Approx Calculated Carry
(% p.a.)
Buy 3m 90% put options
0.7%
-2.7%1
-2.2%
Buy 1yr 90% put options
3.5%
-1.4%2
[-10% / +23% ]
-2%
Buy 2yr 90% put options
6.4%
+0.3%3
-1.8%
Calendar collar
n/a
+6%4
1.Source: SocGen Engineering. Calculated since 2000 using Eurostoxx 50 data
2.Source Bloomberg using S&P 500 data. Average of negative years is -4.6%. Using Eurostoxx data since 2000 the equivalent result is +0.06%
3.Source SocGen Eurostoxx 50 data since 2000
4.Source SocGen, strategy consists of buying 1/12 of 1 year 90% put per month and selling 2 week 102% calls
5.Calculated by Redington based on option pricing using real-world equity expected excess return of 3% and realised volatility
28. Teach-in
Equity Downside Hedging
September 2014
28
When we look at possible protection strategies, three distinct objectives emerge…
28
29. Teach-in
Equity Downside Hedging
September 2014
Protection strategies classified according to objectives
KEY
Single Static Put Option Strategy
Multiple Static Put Option Strategy
Dynamic Option Strategy
Systematic Option Strategy
VIX
Variance
Volatility Control
Low Volatility Stocks
Volatility Control + Annual Put Option
29
30. Teach-in
Equity Downside Hedging
September 2014
Carry costs
30
Historic Carry p.a. [min/max]
Approx Calculated Carry
(% p.a.)1
Buy 1yr 90% put options
-1.4%2
[-10% / +23% ]
-2%
VIX
-5% p.a. [since 2009]
c-1% longer term estimate
-1/-2%4
Volatility Control with Put Option
Slightly positive since 19993
-0.5%
1.Calculated by Redington based on re-pricing option using real world expected equity excess return of 3%p.a. and volatility
2.Source Bloomberg using S&P 500 data. Average of negative years is -4.6%. Using Eurostoxx data since 2000 the equivalent result is +0.06%
3.Calculated by Redington
4.Carry cost for VIX calculated by looking at the average level of contango in the futures curve (the extent to which the futures price tends to be higher than the “spot” VIX price)
31. Teach-in
Equity Downside Hedging
September 2014
One approach in detail – Volatility Controlled Equity + Put
31
•The purpose of today’s session is to contrast various approaches to hedging equity tail risk and protecting equity portfolios
•There is one approach that we favour for our clients, based on our own research and experiences and it has formed one of our high-conviction strategic asset allocation views for the last year
•7 clients have implemented or signed off the allocation, accounting for more than $1bn in allocation
•It can be summarised as follows:
•Implement a benchmark for the equity allocation based on a volatility- controlled index (this can be achieved through a futures overlay program or TRS, we have favoured TRS)
•Adopt a program of buying 1 year 90% put options on the volatility controlled index to protect downside
•Volatility control cheapens the carry cost of a put option strategy substantially (carry cost is reduced by c75%)
32. Teach-in
Equity Downside Hedging
September 2014
How does the performance of Volatility Control with and without a Put compare?
32
0
50
100
150
200
1999
2002
2005
2008
2010
2013
MSCI World Index
MSCI World Vol Control (10% Vol) Index
MSCI World Vol Control (10% Vol) with Put (90% strike)
Performance MSCI World vs MSCI World 10% Vol Control with and without Put
33. Teach-in
Equity Downside Hedging
September 2014
Not only is equity risk high, it is also very variable
33
Passive MSCI World Nov 1998 – Dec 2013
Whole Period Average Volatility (% p.a.)
15%
Maximum Volatility (% p.a.)
63% (December 2008)
Minimum Volatility (% p.a.)
6% (February 2007)
0%
10%
20%
30%
40%
50%
60%
70%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Annualized Volatility (%)
Passive MSCI World Rolling Volatility
Long-term volatility
Annualized Rolling and Long-Term Volatility of MSCI World
34. Teach-in
Equity Downside Hedging
September 2014
Volatility Control invests to target a lower and constant level of risk
34
•By “driving to the conditions”, the scheme experiences a smoother ride
•The objective is not to “outperform” passive equities, but to control risk
0%
20%
40%
60%
80%
100%
120%
140%
160%
1999
2000
2000
2001
2001
2002
2002
2003
2004
2004
2005
2005
2006
2007
2007
2008
2008
2009
2009
2010
2011
2011
2012
2012
2013
% Allocation of volatility controlled approach
% Allocation of Volatility Controlled Index
Allocation to Equities in Volatility Controlled Index
36. Teach-in
Equity Downside Hedging
September 2014
What is the cost of a put option?
36
Cost of equity downside protection with maturity of 1 year
Source: Bloomberg, Investment Banks; Calculations: Redington. Pricing is indicative and subject to change
1 Year Protection level
Current cost of protection on Global Equity Index (%) over 1 year
Stressed market conditions cost of protection on Global Equity Index (%) over 1 year
Cost to protect 10% Volatility Control portfolio (%) over 1 year
90%
3.5%
6.5%
1.0%
85%
1.6%
4.8%
0.5%
80%
1.3%
3.5%
0.2%
The above figures are the approximate premium for the option. Very roughly the annual carry cost (expected return drag) is roughly half that
37. Teach-in
Equity Downside Hedging
September 2014
One approach in detail – Volatility Controlled Equity + Put Driving to the conditions – with fully comprehensive insurance
37
38. Teach-in
Equity Downside Hedging
September 2014
Extensions of downside protection
38
•Strategies which access risk premia with volatility control in liquid markets are in theory reasonable candidates for downside protection
•Three obvious examples of this include
•Risk Parity
•Style Premia
•CTAs
•Implementation challenges are more significant than for equity as a standalone, and carry costs are likely to be higher, but we still believe that it can make sense from a strategic perspective
39. Teach-in
Equity Downside Hedging
September 2014
Recap & Conclusions – what we’ve covered
39
•Equities can experience large, infrequent drawdowns which can dominate portfolio risk even when equities are held at lower levels
•Equity drawdowns can challenge the investment objectives of a pension fund or institution, and that’s what really matters in terms of tail risk
•Direct hedges using options has several benefits:
•Help safeguard objectives
•Provide ability to add value by moving into distressed assets following sell-off
•Safeguard liquidity position, particularly if in negative cashflow
40. Teach-in
Equity Downside Hedging
September 2014
Recap & Conclusions
40
•Diversification and risk control are powerful portfolio building blocks that help reduce drawdowns
•But they do not by themselves provide downside protection. This can only be achieved by direct hedges using options
•Option strategies likely to bear a carry cost (equal to roughly 50% of premium per year)
•Volatility controlled benchmarks reduce the cost of downside protection considerably
Click image to access paper
41. Teach-in
Equity Downside Hedging
September 2014
The returns of a downside protection strategy are not evenly distributed
41
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Annual Percentage Return
Relative returns of S&P500 strategy with 1yr 90% put strategy vs S&P 500
•Making it hard to evaluate even using datasets of 15 years or more
42. Teach-in
Equity Downside Hedging
September 2014
Downside Risk Management in the Press and Media
42
Further Reading The Actuary Magazine http://www.theactuary.com/features/2012/12/volatility-control-taming-the-beast/ RedViews http://redington.co.uk/getattachment/eea3dd74-37c8-446e-afa9- fd8d1973f295/Taming%20The%20Beast.aspx RedBlogs http://blog.redington.co.uk/Articles/Dan-Mikulskis/September-2012/VOLATILITY- CONTROL.aspx The Journal of Indexes http://www.indexuniverse.com/publications/journalofindexes/joi-articles/12932-optimal- design-of-risk-control-strategy-indexes.html