Managing portfolios from downside risks
After global equity markets bottomed during the global financial crisis, the rebound rally was fairly consistent. With only a few brief exceptions, market volatility levels stayed well below historical levels. Up until the notable correction in late 2018, market participants’ memories of the carnage of 2009 were starting to fade. Fortunately, even that correction failed to leave much lasting damage with the market reaching previous highs within six months of the correction. Since that time, an elevated volatility regime has replaced of unnaturally low volatility. Uncertainty from politics and trade disputes has some investors concerned about their equity allocations, while others are looking to enhance traditional static allocation with more dynamic behavior going forward.
The challenge of protecting against market corrections is not met by a “one size fits all” solution. This paper provides seven considerations for establishing an effective drawdown-hedging program