Crisis-Proofing Your Portfolio

Crisis-Proofing Your Portfolio

Today’s post is about crisis-proofing your portfolio.

  • It was drafted back in February before the coronavirus hit Europe.

So you will obviously have to wait for the next crisis in order to take advantage of any lessons it contains.


As I have mentioned before, one of the best investing groups that I attend is the London Quant Group or LQG.

  • They hold around eight evening seminars throughout the year, plus an all-day seminar in the spring and a long weekend away in Cambridge (which is not free) in the autumn.

Many of the meetings are held under Chatham House rules – usually because the papers being presented have not yet been published.

  • Which means in turn that I can’t write about them.

But sometimes we look at a paper that’s already been published.

Otto van Hemert

Otto van Hemert

The February 2020 meeting was a talk from Otto van Hemert, one of the authors of a paper from Man AHL that was published last year.

  • The relevant page on the Man website is called Can a Portfolio be Crisis-proofed, but I prefer the longer title of the paper itself: The Best of Strategies for the Worst of Times.

As we are now at the end of an eleven-year bull market, I only wish the paper had been presented a few months earlier.

  • But there is never a bad time to investigate a topic like this.
The strategies

The paper looks at six defensive strategies from 1985 to 2018, a period which includes eight drawdowns in the S&P 500 of more than 15%, and three US recessions:

  1. Buying put options on the S&P 500
  2. Being long credit protection (or short credit risk)
  3. Bonds (US Treasuries)
  4. Gold
  5. Trend-following (Passive strategies

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