Retirement Portfolio Resilience Perspective
Primary Pillar: Risk Pricing Discipline
Supporting Pillars: Retirement Portfolio Construction • Resilience Across Market Environments
This article examines the role of dynamic hedging as a disciplined approach to managing investment risk through changing market conditions.
It explains how embedded downside protection can be actively managed to balance capital growth, income and risk without relying on market prediction or static asset allocation. Rather than viewing protection as a temporary response to periods of uncertainty, the article demonstrates how Retirement Portfolio Resilience is strengthened through disciplined risk management and portfolio construction designed to help investors remain financially and emotionally invested throughout their retirement journey, regardless of the path markets take.
This article forms part of a broader body of research, educational articles and practical insights organised through the Retirement Portfolio Resilience Framework.
In today's turbulent financial market, managing investment risk is crucial for ensuring long-term success for equity managed funds. One of the most effective ways to manage risk is dynamic hedging, which involves adjusting the protection positions of a portfolio in real-time based on market changes. This strategy is used by sophisticated fund managers with the systems to continuously monitor market conditions and know how to adjust their portfolios accordingly.
Gyrostat uses dynamic hedging to manage the trade-off between returns, income, and protection levels (risk). Our approach has focused on a pre-defined quarterly ‘hard’ risk parameter, and then to maximise returns and income within that constraint. A secondary consideration is the source of returns, in particular the level of correlation with the market. From established finance theory adding non correlated assets is of significant value to the overall portfolio, so the Gyrostat approach has been to generate returns in rising and falling markets, which increase with volatility.
