Swan’s Defined Risk Strategy was designed in 1997 to be an investment strategy for a complete market cycle, meaning a period that incorporates both a bull market and a bear market. The DRS seeks to avoid major losses from bear markets. The hedging component of the strategy adds the most value when markets sell off significantly. So while the strategy produced very favorable returns during the “lost decade” of March 1999 to March 2009, how has Swan’s DRS fared in an environment without a bear market?
The chart below shows the ten-year performance of the DRS for both periods discussed previously. As we can see, the performance is consistent through the best of times and worst of times.
Source: Swan Global Investments. DRS returns are from the Select Composite, net of all fees. NOTE – this chart is for illustration purposes, not a guarantee of future performance. The charts and graphs contained herein should not serve as the sole determining factor for making investment decisions.
The difference in the DRS Select Composite’s performance is slight. During the decade of two bear markets (i.e., Mar 99-Feb 09) the DRS had an annualized return of 6.46%. During the decade of no bear markets (i.e., Mar 09-Feb 19) the DRS’s annualized return was 7.32%
All of these charts illustrate the fundamental problem the DRS set out to resolve over twenty years ago. When compared to the two decades in the S&P 500, the DRS was able to provide more stability than passively riding the uncertain S&P 500 wave.
Source: Swan Global Investments. The S&P 500 Index is an unmanaged index and cannot be invested into directly. Swan DRS returns are from the Select Composite, net of all fees. NOTE – this chart is for illustration purposes, not a guarantee of future performance. The charts and graphs contained herein should not serve as the sole determining factor for making investment decisions.
The DRS has demonstrated remarkable consistency with its returns. Whether it was the best decade for the markets or the worst, the DRS averaged a rolling 10-year annualized return of 7.9%.
While this isn’t as exciting as riding a wild up market, it does offer the smoother, consistent ride that helps investors stay invested, especially though bear markets when investors are most likely to panic and sell.