Hedging Portfolio Risk

Market Volatility and Portfolio Diversification

Large Hedge Representing Absolute Return Investment Strategy for Volatility HedgingA recent Forbes article featured a couple of ideas for hedging portfolio risk during periods of uncertainty in the market (which seems to be all the time since 2013!).

The point of the article is that option trading strategies could be good choices for individuals interested in hedging some of their portfolio risk. In other words, the author is suggesting portfolio diversification using options. His preferred strategy involves using options to exploit pricing disparities caused by mis-estimation of future volatility.

Sell Volatility to Protect Against Market Declines

Summit Investment management is very familiar with the idea of using volatility trading strategies to diversify investment portfolios. In a recent article written for a private publication, we noted that volatility, as represented by the CBOE Volatility Index or VIX for short, has historically been negatively correlated to the S&P 500 Index which makes it a viable candidate for diversification.

The author also points out the conundrum inherent in buying protection against a market collapse: while it offers the most effective way to hedge a portfolio, it also requires excellent timing to avoid losses on your protective positions should the market not collapse.

Like the Forbes author, Summit prefers a hedging strategy that involves selling volatility to provide some protection from a market decline. We employ this strategy, combined with our equity portfolios, in our Absolute Return family of diversified strategies. We offer three different strategies designed to accommodate different levels of individual investor risk tolerance.

For more information about our Absolute Return Strategies and to see if they’re right for you, contact Summit’s financial advisors for a free consultation.
You can read the entire Forbes article here.

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What Is Smart Beta and Why It Matters to Investors

Smart Beta Funds: Summit’s Approach Since 2003

Dollar Bills Representing Money Earned through Smart Beta FundI recently read an article by State Street Global Advisors that argues that Smart Beta is more than a marketing gimmick and can provide a real benefit to investors.

Smart Beta, as the article puts it, is “simply a rules-based approach to investing that seeks to capture specific factors—or investment characteristics—that active managers commonly seek exposure to, while preserving the benefits of traditional passive approaches, including transparency, consistency and low cost.”

Of course Smart Beta is nothing new for Summit Investment Management. In fact, since 2003, we have offered investment portfolios based on a proprietary and highly disciplined rules-based stock scoring process that has produced above-benchmark returns over the life of the portfolios.

See how our Smart beta portfolios have performed over the long term.

The factors or “characteristics” we focus on are based on Cash Flow Return on Investment or CFROI which was developed by Merton Miller and Franco Modigliani who both eventually won a Nobel Prize for their work in this field.

Just as we did in 2003, we strongly believe that a growing profit margin is the key driver of excess market returns and that cash-flow based margin analysis is the best way to evaluate profitability.

Contact our smart beta financial advisors today for a free consultation on investing with our rules based portfolios.
You can read the State Street Advisors article in its entirety here.

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