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Risk-Managed Equity Exposure

Can we de-risk market downturns?

Nicolas Rabener
10 min read
14 Mar 2022

SUMMARY

  • Risk management overlays tend to reduce stock market returns
  • However, they also can reduce drawdowns and increase Sharpe ratios
  • Given that diversification has become more difficult, these are becoming more relevant

INTRODUCTION

It is tough to have high return expectations for stocks for the coming years. Stocks may go up in the short-term, but over the long-term, returns are primarily a function of valuations, which are at record-highs. Worse, the long-term outlook for economic growth is low to negative in most countries due to poor demographics and rising debt levels, which are not supportive of the earnings growth of public companies. The future is bleak.

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