Updated Performance for Buy & Hedge

by Wayne Ferbert on April 24th, 2012

We have updated our performance returns here on the blog - as we promised we would do in our book. If you navigate to our Performance page, you will see the updated metrics. We have updated for the period from September thru December of 2011. 
We thought we'd share a little more color on our performance also. As a reader of our blog and/or book, you know that hedging has a cost. Nothing comes for free - least of all portfolio insurance. So, in the last two years, with the market steadily up in 2010 and sideways in 2011, our portfolio slightly under-performed the S&P 500. See the chart below.
Of course, the out-performance of the overall portfolio over this 4 year window is pricipally driven by one rule: Capital lost is Capital that cannot grow. This portfolio protected its capital in 2008 and early 2009 and then still captured the upward moving market of 2009 & 2010.

This is the nature of a Buy & Hedge portfolio: out-performance when the market is down sharply & under-performance in up-ward moving or side-ways market. All of the alpha is typically generated in that year where the hedges kicked in and protected your capital. However, because we are hedged, we sleep like a baby EVERY NIGHT - not just some days.

One other interesting piece of data that we have not talked about before on this blog: the portfolio volatility. The overall S&P 500 monthly volatility during this 4 year window was 20.5%. Our portfolio had a volatility of 13.8% measured on identical parameters. In other words, our portfolio had a third less volatility - and still out-performed. Put differently, our portfolio did not fluctuate in value like the rest of the market - leading to better sleep for the portfolio owner.

Hope this data helps you see the benefits of an actual buy and hedge portfolio in action!


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