Seeking Volatility Protection Using Indices

With markets fluctuating between “risk-on” and “risk-off” environments, shifts in economic conditions can pose significant challenges for investors. Exhibit 1 shows events throughout the current market cycle causing dramatic spikes in volatility and large drawdowns. With more of these likely in the future, as our long bull market cycle ages, how do investors best position portfolios to respond?

Many investors are familiar with the indices that exist to gain broad market exposure in a low-cost, liquid, and transparent manner. But which passive strategies can outperform during periods of negative equity performance and increased volatility?

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