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.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons.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.
This presentation is not research and should not be treated as research. This presentation does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR.
There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. This presentation should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy.
Diversification does not eliminate the risk of experiencing investment losses. Broad-based securities indices are unmanaged and are not
subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an
The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives
and financial situation. Please note that changes in the rate of exchange of a currency may affect the value, price or income of an investment
Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. Hypothetical performance results are presented for illustrative purposes only.
Diversification does not eliminate the risk of experiencing investment loss.
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