Drawdown control solutions: beware opportunity costs

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Drawdown control solutions: beware opportunity costs

Alexey Medvedev - Portfolio Manager

Alexey Medvedev

Portfolio Manager
Alain Forclaz - Gérant de portefeuilles clients

Alain Forclaz

Gérant de portefeuilles clients
Sui Kai Wong - Portfolio Manager

Sui Kai Wong

Portfolio Manager

There is no such thing as a free lunch when insuring a portfolio against drawdowns. Various solutions that deliver stronger downside protection1 also tend to be associated with higher opportunity costs.

For instance, solutions used to limit drawdown, such as volatility targeting and Constant Proportion Portfolio Insurance (CPPI), both have drawbacks.

We approach drawdown control with a view to minimizing opportunity costs while delivering downside protection. We propose two methods based on the idea of balancing absolute and relative drawdown solutions.

No single solution is perfect in all situations, therefore our approaches are tailored to cover a wide spectrum of applications.

Our solutions can help investors balance both costs and benefits. We believe that the optimal portfolio insurance strategy should deliver the required downside protection without sacrificing potential opportunities.

 

Please find key terms in the glossary.

sources.

1 Capital protection represents a portfolio construction goal and cannot be guaranteed.

informations importantes.

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