Portfolio Risk Management: Our Safety Net in Action
By Jerry Miccolis, Chief Investment Officer, Principal, and Senior Financial Advisor
On March 21, 2011, we released a Special Client Bulletin: Update on portfolio protection. That bulletin stated in part, in reference to the protective note we put in place for you in February 2010: “In the almost-13 months since inception, the note has performed quite admirably. It generally behaved, as expected, just like an S&P 500 Index fund. However, during the ‘flash crash’ in May 2010, we were able to see the benefit of EMERALD in action. The EMERALD portion of the note increased as volatility spiked, and even more importantly, has been able to maintain its higher level as markets returned to normal. The note has therefore substantially outperformed the S&P 500 Total Return Index to date, after all expenses. Including this note as part of your equity position has provided protection to your portfolio without compromising your strategic asset allocation.” Now that the original note has since matured, we can provide more specific data on its performance. Over its 13-month term, the S&P 500 Total Return Stock Index grew 21.1%. The note, after all expenses, grew 33.2%. As we also said in our bulletin: “Please understand that if the note had performed exactly like the S&P 500 Index, instead of substantially beating it, we would have been perfectly satisfied. Why? Because that would have meant that we added meaningful protection to your portfolio at no cost. As we said in our original February 2010 bulletin, we expect the protection to pay for itself. It turned out that, over the last 13 months thus far, it has done that and more.” For additional risk management, we have replaced the matured note with two notes of similar design, so that there is no lapse in your protection.
As always, please let us know if you have any questions along the way.
