Eaton Vance: an alternative to hedging downside risk
INDUSTRY VOICE: The resurgence in equity market volatility in 2018 has again focused investor attention on how to limit downside risk in a portfolio without giving up too much of the upside potential associated with long-term equity investing.
According to Eaton Vance subsidiary Parametric Portfolio Associates LLC ("Parametric"), the ultra-low volatility we experienced in 2017 is unlikely to return anytime soon. So what are investors to do? Often, when faced with the prospect of a material drawdown in an equity portfolio, investors consider buying protection via long option positions. However, in Parametric's view, hedging can be a challenging and often futile undertaking. A viable alternative for asset owners, according to Parametric, is to own less risk and to be the seller of the hedge. The white paper (see link below) by Tom Lee, Managing Director of Strategy and Research at Parametric, explores this point in more detail.
