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Economic and Market Commentary

A Defensive Allocation in Broad Portfolios: How Much Is Enough?

Executive Summary

  • For investors whose portfolios have a significant equity exposure, equity-risk-mitigation strategies may be used to alleviate the impact of severe equity market drawdowns.
  • Incorporating risk mitigation strategies optimally can potentially enhance portfolio defensiveness against market declines without sacrificing too much return.
  • Defensive alternative risk premia strategies are a natural candidate for risk mitigation, as they provide attractive return potential and have negative equity beta. Combining them with an equity-heavy portfolio may lead to lower equity beta with attractive returns.

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