The search for a dependable, low-cost portfolio tail protection or hedge from exogenous events such as the 1987 crash, 2008 credit crisis, 2011 European crisis, and the Covid-19 crisis is imperative in an environment where zero interest rate environments make bonds ineffective as a hedge.

The IPS Volatility Hedge is designed to define the cost of a hedge and has proven to be extremely effective in market crashes. The graph below shows how a de minimus allocation to the IPS Volatility Hedge in a 100% long portfolio would have resulted in a total portfolio value return of over 14% at the March 2020 bottom.

The graph above shows how just a small allocation of the IPS Volatility Hedge into a traditional 60/40 portfolio can dramatically hedge downside risk with almost no carry cost.

The conceptional idea of the IPS Volatility Hedge is by systematically allocating VIX call options along the horizontal skew can minimize the roll cost and be extremely effective when the term structure moves from Contango to Backwardation.

Click above for an in-depth analysis of how we implement the volatility hedge for our institutional clients.


Please note that the information contained in this piece is intended for investment professionals. This information should not be misconstrued as an offer to buy or sell, or a solicitation to buy or sell securities. Any performance contained in this article is strictly informational and is not necessarily indicative of the future performance of investments. Past performance is not indicative of future investment performance and investors should always consult a financial professional prior to making any investment decisions.

The results shown here are strictly for informational and educational purposes. All investments have the potential for profit and the potential risk of loss. Changes in investment strategies, contributions, or withdrawals may cause the performance results of one’s portfolio to differ materially from the reported composite performance. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio. One should always consult an investment advisor before making any investment decisions.