Over a 40-year working life, Defined Contribution (DC) savers try to maximize two basic investment outcomes: wealth accumulation and wealth preservation. However, these objectives present a basic tradeoff: for many retirement savers, the investments designed to promote wealth accumulation (equities) are different than the investments designed to promote wealth preservation (e.g., cash, bonds). Defensive equites seek to provide a “best of both worlds”, by delivering the equity risk premium to achieve wealth accumulation, but by investing in less-risky equity securities to promote wealth preservation.
In part one of this two-part series, we focus on the intuition behind defensive equity and present evidence for its efficacy. In part two, we focus on the implementation of a defensive equity strategy within the context of a defined contribution retirement plan.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.