Since the global financial crisis, many investors have taken a greater interest in defensive-minded strategies that capture less than 100% of the market’s downside, even if that means sacrificing some market upside. While we agree with an approach that seeks to minimize downside, that is really only half of the story. Upside capture may be just as important. We would argue that the critical consideration is how one balances the trade-offs between upside and downside capture. To help frame this decision, we offer a lens through which investors can view portfolio construction and risk management: asymmetry.
In this paper, we offer a brief overview of the concept of asymmetry, a framework for applying asymmetry within a portfolio, and a few thoughts on selecting managers with the potential to consistently deliver a desired asymmetry profile. We end with some ideas from our multi-asset strategists on how different types of investors might apply this framework in their portfolios.
Important Risks: Investing involves risk, including the possible loss of principal.
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