Integrating Volatility in a Strategic Portfolio Allocation

2021-05-19

Amidst dampened expectations for equity and government bond returns, Dominicé’s investment team has carried out an analysis of how traditional diversified portfolios could be enhanced with volatility strategies.

We compared various defensiveness metrics between volatility strategies and the US Treasuries. Our research shows that the risk-return profile of a traditional portfolio can be significantly improved with volatility strategies. The table below shows that adding only 10% of Long Volatility and 10% of Relative Value Volatility strategies to the traditional portfolio decreases worst drawdown by a third and considerably reduces volatility of the overall portfolio, whilst increasing its Sharpe ratio:

 

60-40

50-30-20

25-75

 20-60-20

Annualized Return

7.9%

7.7%

5.7%

5.8%

Volatility

8.6%

7.0%

4.0%

3.3%

Sharpe Ratio

0.9

1.1

1.4

1.8

Max. Drawdown

30.6%

21.1%

9.0%

5.4%

60% S&P 500, 40% US Treasury
50% S&P 500, 30% US Treasury, 20% Volatility
25% S&P 500, 75% US Treasury
20% S&P 500, 60% US Treasury, 20% Volatility

Please click here for the full analysis and commentary.

If you would like to discuss how Dominicé could help you enhance your portfolio returns with volatility solutions, do not hesitate to request a meeting with one of our specialists.