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Perspective

Buffer Madness

May 8, 2025 - Cliff Asness Daniel Villalon

Last month, we posted a short piece critical of options-based strategies such as “defined outcome funds” and “buffered ETFs”. It showed that the vast majority of them failed to deliver either better returns or less-severe drawdowns than a simple combination of passive equities + cash. Since then, we’ve gotten quite a bit of—let’s call it—feedback. My partner Dan, who wrote the original, now writes the devastating response to his predictable critics. My only criticism is he is too kind.

Perspective

Rebuffed: A Closer Look at Options-Based Strategies

March 21, 2025 - Cliff Asness Daniel Villalon

Options-based strategies, often labeled with words like “Buffered,” “Overlay,” and “Defined Outcome” have amassed a sizeable chunk of investors’ money, lured by the promise of market-like returns with less risk. These strategies use options to capture the upside or downside of an asset’s returns, and managers who employ a mix of options can tailor an asset’s risk/return profile to align with an investor’s goals. But can they actually deliver?

Journal Article

International Diversification—Still Not Crazy after All These Years

May 3, 2023 - Cliff Asness Antti Ilmanen Daniel Villalon

International diversification has hurt US-based investors for over 30 years, but the long-run case for it remains relevant. We show that both financial theory and common sense favor international diversification, buttressed by empirical supportive evidence. Additionally we show it would be dangerous to extrapolate the post-1990 outperformance of US equities.

White Paper

Re-Emerging Equities

March 28, 2023 - Michele L. Aghassi Daniel Villalon

The expected premium for investing in emerging versus developed equity markets is on the upper end of its past 25-year range. At the same time, many of the risks historically associated with emerging markets have secularly declined. We believe there is a strong case for investors to “re-up” their emerging allocations.

Journal Article

Tail Risk Hedging: Contrasting Put and Trend Strategies

July 8, 2020 - Antti Ilmanen Ashwin Thapar Harsha Tummala Daniel Villalon

The sharp market fall and speedy recovery during the eventful first half of 2020 has kept tail risk hedging topical: investors have both fresh memories of a painful loss and renewed fears of a repeat. We try to offer a balanced overview of the strengths and weaknesses of direct and indirect tail hedging strategies.

Journal Article

Portfolio Protection? It’s a Long (Term) Story…

April 23, 2020 - Nicholas McQuinn Ashwin Thapar Daniel Villalon

Investors have a natural urge to protect their portfolios from sudden crashes, even though bad outcomes that unfold over longer periods are more detrimental to reaching long-term goals. We show risk-mitigating and diversifying strategies have added value more consistently than options-based hedging over the more important, longer drawdowns.

White Paper

Chasing Your Own Tail (Risk), Revisited

November 19, 2019 - Ashwin Thapar Daniel Villalon

As investors turn to addressing the risk of a severely declining market, we summarize five approaches to building a more resilient portfolio.

DC Solutions Series: Defensive Equity, Part 2

February 15, 2017 - Maxwell Freccia Matthew Rauseo Daniel Villalon

In part two of this two-part series, we focus on the implementation of a defensive equity strategy within the context of a DC retirement plan.

Journal Article

Embracing Downside Risk

January 15, 2017 - Roni Israelov Daniel Villalon

This paper shows that downside risk tends to be the main source of long-run returns in equities and other asset classes, and argues that long-term investors may be better off embracing downside risk in certain cases.

Journal Article

Superstar Investors

December 6, 2016 - Daniel Villalon Jordan Brooks Severin Tsuji

Many famous investors are outspoken about their investment philosophies and use them selectively. We seek to apply their wisdom systematically to determine whether their philosophies, if applied broadly, might still generate “alpha.”