Evaluating the Defined Risk Strategy

The Defined Risk Strategy (DRS) is designed to help investors navigate and capitalize on market cycles.


The following materials are intended to help investors understand our full-market cycle strategy and form reasonable expectations for how the DRS may perform in various market sell-offs.

Performance Analysis in Various Market Environments
Portfolio Protection Starts with Understanding Bear Markets and Black Swans
  • A historical analysis of market mistakes and potential solutions
  • Assessment of risk management via asset allocation alone
  • The redefinition of risk as the severity, frequency and duration of portfolio losses,  not simply as volatility
  • Analysis of DRS performance in periods of major market distress and bear markets since 1997
Managing Expectations — Drawdown Scenarios and Swan DRS Performance Analysis
  • Define key characteristics of every market drawdown: Speed, Magnitude, and Duration
  • Explore different variables that impact the performance of the DRS during drawdowns
  • Analysis of historical examples of both favorable and unfavorable drawdown scenarios for the DRS Select Composite since 1997
Analysis of Three Largest Drawdowns — Swan Defined Risk Strategy
  • The Defined Risk Strategy Select Composite
  • Three worst drawdowns since inception July 1, 1997
  • Relative moves versus the S&P 500 Index
  • Analysis of market conditions and DRS performance
Risk Analysis & Software

It’s tough to make predictions, especially about the future.” — Yogi Berra


In the wake of the Global Financial Crisis of 2007-09, numerous statistical tools became available that attempt to quantify the risk to a portfolio under adverse scenarios. Broadly speaking, these types of tools attempt to estimate future risk following one of two methods:

  1. Holdings-based

  2. Returns-based

Each has their relative strengths and weaknesses. Neither is perfect.

Risk Analysis Software Considerations & The Defined Risk Strategy
  • Define Holdings-Based Analysis (HBS) vs. Returns-Based Analysis (RBA) vs. track record stress tests
  • Analyze the pros and cons of each approach
  • Assess efficacy of these models in forecasting future risk specifically with regard to options-based strategies like the Defined Risk Strategy
Analysis of the Defined Risk Strategy’s Options Premium Component

Beyond the two traditional tools for return generation used in portfolio construction, bonds and stocks, other “options” have arisen for investors – option-based strategies.


Option-based strategies seek to define the risk and reward over a particular time frame and/or seek to generate cashflow; they have proved themselves a useful tool in market environments that were difficult for equities, bonds, and other liquid assets.

Seeking Options: Defining and Managing Risk with Options-Based Strategies
  • Assessment of the rise of options-based strategies in the marketplace
  • Analysis of efficacy of options-based strategies to enhance portfolio risk and reward metrics
  • Analysis of efficacy of various options-based risk premium strategies to generate cash flow
  • Performance analysis of options-based strategies vs. individual stocks 2003–2013
Harvesting Risk Premia with the Defined Risk Strategy

The market is unpredictable, making it difficult to time the markets or consistently pick outperforming stocks. That’s why we believe that the key to wealth creation is to remain invested while reducing downside risk.


By defining the risk with a hedging strategy, we seek to redefine the risk/return profile of the portfolio.

FAQ: The Options Premium Component of the Defined Risk Strategy


Beyond the use of options to hedge the underlying equity investment, the third component of the DRS investment process involves an actively-managed, market-neutral options strategies that seek to harvest option premium. This options premium component is intended to help offset the cost of the hedging component and generate additional return for the portfolio.


As the use of options at the portfolio level to manage portfolio risk and/or to generate cash flow is not as common as the use of bonds, for example, advisors and investors might have questions about this component of the DRS. As such, we’ve collected many of the most common questions to help explain the risk and rewards of this part of our investment process.

Swan Defined Risk Investing

Learn more about our distinct investment process, review performance, explore available DRS structures, and more.

*Source: Swan Global Investments and Morningstar; the S&P 500 index in an unmanaged index, and cannot be invested into directly. Past performance is no guarantee of future results. The performance numbers referenced above are used for illustrative purposes to indicate the DRS’s performance during Bear Market conditions.