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Buy and Hedge Strategy Update & 2021 Hedged Equity Peer Review

Buy and Hedge Retirement Adjustments to Enact the Hedger’s Opportunity

Today ZEGA’s traders made some adjustments to accounts currently in our Buy and Hedge Retirement strategy.

The “Hedgers Opportunity” in the strategy allows for us to manage positions to capture more of a rebound. Long time users of the strategy might remember the adjustments done in February of 2020 as markets moved lower. Some key points on this to convey to you and your clients. 

  • After pullbacks > 5% configure positions to capture more of potential rebound
  • Adjustments without adding additional max loss risk
  • Based on ZEGA’s research on historical data around pullbacks and recoveries
  • Look to capture more of rebounds after avoided losses

I published a more extensive article around the methodology previously that you can reference here.

Each adjustment can be a little different, but that piece will give a nice overview for you. 

Buy and Hedge Retirement Peer Review 

2021 was another good year for our flagship hedged equity strategy.

Referencing the graph above, we can see that it outperformed across a 1-year, 3-year, and 5-year period. Looking at the Sharpe Ratio, which measures risk adjusted returns, it trailed only 1 other across the 3-year and 5-year periods. Hedged equity strategies are not designed to beat the market as there is some embedded cost of hedging.

Along those lines, Buy and Hedge Retirement captured a little over 72% of the return of the S&P 500 Index which delivered on our stated objectives.

At the same time, avoid a material amount of losses during bad drawdowns in the market. As many of you are familiar with our design to put a floor in portfolios on the equity positions of 8%-10% down.

We will continue to look to update everyone as we move forward on the strategy. Thank you to everyone who has entrusted ZEGA to manage your client’s portfolios. We look forward to working with you in the year ahead.