Portfolio Risk and Performance
Chasing Your Own Tail (Risk), Revisited
November 19, 2019
Topics - Portfolio Risk and Performance Alternative Investing
One of the most important topics on investors’ minds following the Global Financial Crisis was how to protect their portfolios from the next crisis. Our paper “Chasing Your Own Tail (Risk)” was our response. In it, we argued that for most investors, direct ways of protecting a portfolio — through the purchase of options — were too costly; instead, we presented five ideas that we thought would serve long-term investors better.
Since then, traditional 60/40 portfolios have had above-average returns and much lower-than-average risk. Thus, any strategy designed to mitigate risk has recently faced at least two headwinds: few risks to protect against, and a high-performance hurdle to warrant its inclusion in a portfolio. But today, perhaps in part due to high stock and bond market valuations, the length of the post-GFC bull run, or fears of where we are in the business cycle, investors have once again turned to addressing the risk of a severely declining market.
With that backdrop, and with eight years behind us, we evaluate how our original recommendations held up. Below we summarize these five approaches to building a more resilient portfolio. Download the paper for more on each.
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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons.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.
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