How ETFs Mitigate Market Risk

August 14, 2017

Marc OdoSwan Global Investments has been managing ETF portfolios that combine equity exposure with an options overlay for 20 years. The Durango, Colorado-based firm’s approach is resonating with the advisor and retail crowd Swan serves.

In the past three years alone, the firm has seen its total assets under management more than double to $4.5 billion. Marc Odo, director of investment solutions at the firm, gives us the rundown. What’s Swan Global’s core investment philosophy?

Marc Odo: In the last 20 years, we’ve seen a lot of things happen. We’ve seen the two biggest bear markets since World War II. We’ve seen the second-longest bull market in U.S. history. And we’ve seen all sorts of events like Sept. 11, and the long-term credit blowup.

Through it all, the philosophy for our firm has been the same: We believe that the biggest risk that any investor faces is market risk. It’s the risk that markets are going to sell off by 20, 30, 50%, which, again, we’ve seen twice in the last 20 years.

The traditional risk mitigation or risk protection strategy has been diversification. People say, “Well, you’ve got to diversify your assets, diversify your portfolios.”

That’s a good idea, but the one risk you can’t diversify away is market risk. If you’re invested, you’re going to be exposed to market risk. To us, that has always been a paradox, in the sense that this is the biggest risk people face, and yet standard investment philosophy says you can’t do anything about it.

Our philosophy has always been that if you can’t diversify away market risk, at the very least you can hedge it away. It’s similar to having an insurance policy. You give up a little bit of the upside for peace of mind in down times. To sum up Swan Global in a short motto, it would be, “always invested, always hedged.”




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