Global Defensive Equity

This strategy aims to outperform the MSCI ACWI^SM Index over a full market cycle with approximately 40% less volatility and more predictable outcomes than traditional factor-based low volatility strategies. The strategy is expected to exhibit a long-term equity market beta of 0.5.

Strategy Goals: Smoother Ride to Global Equity Markets

The Parametric Global Defensive Equity (GDE) strategy aims to outperform the MSCI ACWI^SM Index by following a different path to low volatility equity. It seeks to structurally reduce equity market risk, while adding a relatively uncorrelated risk premium to enhance returns. It is expected that this tradeoff over the long term will lead to a smoother ride along the way and more predictable outcomes. In addition, it seeks to reduce the magnitude of drawdowns and recover faster from stress events.

Portfolio Construction: Harvesting the Volatility Risk Premium

GDE portfolios are constructed and managed to capitalize on the equity "volatility risk premium" that has historically been embedded in equity index option prices. GDE creates implicit downside protection through a core asset allocation that is split between equity and U.S. Treasury Bills.

Investment Cases

Clients utilize GDE within their asset allocations in several ways including:

to complement higher risk global equity strategies
as a replacement for traditional hedged equity strategies
to provide an additional component within the marketable alternatives bucket
as a potential “alpha source” that can be transported to other assets when managed on an “options-only overlay” basis

Investment Thesis

Equity Index options have historically traded with an embedded Volatility Risk Premium (VRP) and we expect this to continue.

Options may be thought of as financial insurance contracts – insurance is not free
Option prices contain a volatility risk premium paid by option buyers to option sellers

A defensively structured portfolio can capture the VRP by selling fully-collateralized options without introducing leverage.

Global Defensive Equity is offered by Parametric Investment & Overlay Strategies. For additional information please visit the Disclosure page.

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Investment advisory services offered through Parametric Portfolio Associates^® LLC ("Parametric"), an investment advisor registered with the US Securities and Exchange Commission (CRD #114310). Parametric is also registered as a portfolio manager with the securities regulatory authorities in certain provinces of Canada (National Registration Database No. 42850) with regard to specific products and strategies. Parametric provides advisory services directly to institutional investors and indirectly to individual investors through financial intermediaries. The information on this website does not constitute an offer to sell, or a solicitation of an offer to purchase, securities in any jurisdiction to any person to whom it is not lawful to make such an offer. Investing entails risks, and there can be no assurance that Parametric (and its affiliates) will achieve profits or avoid incurring losses. All investments are subject to potential loss of principal. Parametric does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the disclosure page for important information about investments and risks.

S&P Dow Jones Indices are a product of S&P Dow Jones Indices LLC (“S&P DJI”) and have been licensed for use. S&P^® indexes are registered trademarks of S&P DJI; Dow Jones^® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); S&P DJI, Dow Jones, and their respective affiliates do not sponsor, endorse, sell, or promote Parametric and its strategies, will not have any liability with respect thereto, and do not have any liability for any errors, omissions, or interruptions of the S&P Dow Jones Indices.

NOT FDIC INSURED. OFFER NOT A BANK GUARANTEE. MAY LOSE VALUE. NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY. NOT A DEPOSIT.

Global Defensive Equity

Strategy Goals: Smoother Ride to Global Equity Markets

Portfolio Construction: Harvesting the Volatility Risk Premium

Investment Cases

Investment Thesis

Connect with our team on this strategy

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