While portfolio hedges are difficult to time, and can incur costs, asset managers and asset owners in the Asia Pacific region are getting savvy in applying defensive overlays through investable indices. These overlays comprise different strategies that are either cost neutral or produce positive carry in normal market conditions, and they deliver proportional gains during periods of volatility.
They are also scalable, making investable indices ideal building blocks for overlays in large portfolios.
Using defensive overlays as part of a strategic asset allocation is not new, but the discussion about adding investable indices has gained momentum in recent years. And we are seeing a healthy demand for investable indices as a complement to traditional hedges, helping many of our Asia Pacific partners outperform their competitors in both stable and volatile markets.
Asset owners and managers thinking about diversification should consider incorporating investable indices as part of a defensive tilt to their portfolios. Especially if they are concerned about a potential breakdown in the historical correlation between asset classes, including equities and bonds, and are looking at other non-traditional sources of diversification.
For deeper insight into investable indices, contact your BofA Securities sales representative for details. For other actionable ideas, explore the rest of our Trader Insights series.
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