In the current environment of heightened volatility, investors are seeking downside protection at a reasonable price. Russell Investments has introduced downside protection overlays to meet the needs of this new risk-on risk-off world.
This involves risk management tools designed to reduce the frequency and/or magnitude of capital losses, resulting from significant asset market declines. These strategies can be applied to different types of asset market exposures, but are most commonly focused on equity, followed by fixed income. The strategies are designed to match individual needs, balancing the level of downside protection with the level of upside participation.
Downside protection overlays are for investors looking to maintain exposure to risk assets over the long term, but are concerned about the impact of short-term market falls due to regulatory or other issues. While total-portfolio hedging can be expensive, dynamic downside strategies which consider smarter ways to implement the protection (e.g. only protecting against falls up to a limit, selling potential upside and/or protecting part of the portfolio) can be attractively priced at times.