Parametric’s Defensive Equity (DE) strategy seeks to provide equity-like returns with reduced volatility over a full market cycle. Investors access the volatility risk premium (VRP) through collateralized put underwriting and covered call overwriting.
For institutions particularly sensitive to volatility, reducing equity market risk in favor of pursuing the VRP smooths out returns over the long term, providing an alternative to hedge-fund strategies at a lower cost and with greater liquidity and transparency.
Investing in an options strategy involves risk. All investments are subject to loss. Learn more.
The effectiveness of the option strategy depends on a general imbalance of natural buyers over natural sellers of index options. This imbalance could decrease or be eliminated, which could have an adverse effect. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived and -executed options programs may be adversely affected by market behavior or unexpected events. Successful options strategies may require the anticipation of future movements in securities prices, interest rates, and other economic factors. No assurances can be given that the judgment of Parametric in this respect will be correct.
Options are not suitable for all investors and carry additional risks. Investors must ensure that they have read and understood the current options risk disclosure document before entering into any options transactions. In addition, investors should consult with a tax, legal, or financial advisor prior to contemplating any derivative transactions. The options risk disclosure document can be accessed here: http://www.optionsclearing.com/about/publications/character-risks.jsp.
Explore more VRP solutions
A smoother ride
DE’s model-driven approach is designed to remove emotions and guesswork from the investment decision-making process.
We construct a lower-volatility portfolio by reducing equity market beta and systematically selling fully collateralized equity index options to enhance returns. Compared with a fully invested equity portfolio, DE’s combination of reduced equity exposure and the VRP is expected to realize a lower magnitude in drawdowns and a quicker recovery from stress events.
The strategy is expected to deliver the best relative performance in moderately down and sideways markets while trailing in strong rallies. DE is best suited to investors with a heightened sensitivity to equity risk seeking an alternative source of yield.
Model beta: 0.5
Intended benefits of Defensive Equity
Learn more >>
DE offers a disciplined and rules-based investment process designed to deliver more predictable, repeatable results without the use of market forecasts or behavioral biases.
Learn more >>
The defensively structured base portfolio is designed to reduce drawdowns during stress events. Consistent exposure to the VRP aims to deliver faster recovery to prior peak valuation compared with a long-only equity portfolio.
Learn more >>
DE gives investors an alternative return source while potentially delivering favorable risk-adjusted returns without sacrificing liquidity. It may be used as a complement or replacement for hedge funds or low-volatility equity allocations.
How it works
Want to know more about Parametric Defensive Equity?
Download our strategy overview.
Why choose Parametric?
As of 12/31/2022
Get in touch
Want to know more about our Defensive Equity solutions? Complete our contact form, and a representative will respond shortly.
More to explore
2023 GICS Framework Updates Spark the Joy of Diversification
by Mark Milner, Senior Investment Strategist
March 20, 2023
Investors seeking diversification will welcome upcoming sector shifts—as long as they’re not too concentrated already.
Climbing Out of Cash with a Bond Ladder
by Bernie Scozzafava, Director, Quantitative Research and Portfolio Management
March 20, 2023
How can investors lock in high rates with reduced risk?
What Happened to Equity Volatility in 2022?
by Perry Li, Senior Investment Strategist
March 9, 2023
Find out why we think call overwriting strategies are attractive in the current environment.