
CUSTOMIZED RIGHT TAIL
A Customized Right Tail hedge is a capital-efficient way to attempt to maximize portfolio upside capture with limited downside risk and makes sense in the current market environment perhaps more than ever:
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Substantial fiscal stimulus is expected to drive equity markets higher.
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Investors that liquidated equity exposure in the recent crash will look to re-enter the market.
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Draw-ups in markets are at least as numerous and severe as drawdowns
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Corporate buybacks are attractive with the low cost of financing and pause in credit spread widening.
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Cross-market demand for convexity will likely continue as managers in other asset classes experience slower rebounds than the equity market.
This strategy enables institutional investors to take advantage of market upswings and avoid the drag and downside volatility that comes with traditional 60/40 equity/fixed income ‘diversified’ portfolios.
This strategy enables institutional investors to take advantage of market upswings and avoid the drag and downside volatility that comes with traditional 60/40 equity/fixed income ‘diversified’ portfolios.
The key is in the customization for each institution:
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Implementation involves a highly hands-on overlay on portfolio beta targets using a basket of liquid call options across asset classes.
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Focus on options markets that are deep, liquid, and sensitive to systemic macro events.
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Designed to be accretive on portfolio objectives of investment committees
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Extremely liquid and cost-efficient.