Options-selling strategies have garnered significant interest from investors over the past decade. This interest is driven by a combination of heightened sensitivity to equity risk, the search for increased yield amid near-zero interest rates, and dissatisfaction with hedge funds’ high fees and low realized alpha. Parametric’s Defensive Equity (DE) Strategy fits squarely within the category of options-selling strategies, also known as volatility risk premium (VRP) strategies, an investment universe where benchmarking considerations are more nuanced.
In this paper we present the main asset allocation buckets where investors have slotted DE and similar strategies. We then discuss the important benchmarking alternatives and considerations related to time horizon, asset class, and isolating various components of performance. We argue for a mosaic approach that incorporates several benchmarks in order to provide the most complete performance picture.