Benchmarking the Swan Defined Risk Strategy

The Defined Risk Strategy (DRS) is distinct—traditional investment classifications don’t fit and standard indices are not ideal benchmarks.


Our hedge equity approach creates a new risk/return profile for the portfolio that is different than a long-only equity investment. As such, our returns over market cycles are not closely correlated with the underlying equity investment.


So what is the most appropriate benchmark?

What’s Your Target: Short-Term Returns or Long-Term Results?

In an industry often focused on short-term performance, investors with long-term goals often become fixated on chasing short-term returns or ‘beating the market’.

To help investors achieve desired results over the long-term, we focus on generating consistent returns through full market cycles.

Setting an Appropriate Benchmark

We believe the best way to evaluate Swan DRS performance is through the prism of the Target Return Band.


In any given year, it is our goal that returns of the DRS will be within or above the blue shaded band. So far, we have produced returns in or above Target Return Band 19 out of 22 years.


This benchmark shows historic year-by-year performance and provides a target for future DRS performance relative to a wide spectrum of annual return possibilities for the underlying equity index.

Source: Source: Swan Global Investments and Morningstar; 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.

Anatomy of the Target Return Band

The graph above shows the risk/return profile of the Swan Defined Risk Strategy and it’s three portfolio components:

The risk in equity investing is defined by the put option. The gold line flattens out on the left (loss) side of the graph as market losses worsen yet remains upward-sloping on the right (gains) as the market continues to gain.


The Target Return band (blue-shaded band) is simply created by adding a historical range of returns of the option premium component to the hedged equity position.

  • The top edge of the blue band is defined by the average returns.
  • The bottom edge of this blue band is defined by the worst historical return of the option premium component.


We believe this is a more conservative way of anticipating the DRS’s overall returns.

Our Target Return Band is Our Benchmark

Long-term investment goals require years or even decades to accomplish, so we believe the goals of an investor should mirror the goal of the DRS: to produce stable, consistent results over market cycles.


As such, the Target Return Band serves as the best benchmark for our strategy relative to our goal.

Additional Disclosures: Swan Global Investments, LLC (“Swan”) is an independent Investment Advisory company headquartered in Durango, CO. Swan is registered with the US Securities and Exchange Commission under the Investment Advisers Act of 1940. Note that being an SEC registered Investment Adviser does not denote any special qualification or training. Swan offers and manages The Defined Risk Strategy (“DRS”) for its clients including individuals, institutions and other investment advisor firms. Swan Global Investments has affiliated advisers including Swan Global Management, LLC, Swan Capital Management, LLC, and  Swan Wealth Advisors, LLC. There are nine DRS Composites offered: 1) The DRS Select Composite which includes non-qualified accounts. 2) The DRS IRA Composite which includes qualified accounts. 3) The DRS Composite which combines the DRS Select and DRS IRA Composites. 4) The DRS Institutional Composite which includes high net-worth, non-qualified accounts that utilize cash-settled, index-based options held at custodians that allow participation in Clearing Member Trade Agreement (CMTA) trades. 5) The Defined Risk Fund Composite which includes mutual fund accounts invested in the S&P 500 equities. 6) The DRS Emerging Markets Composite which includes mutual fund accounts invested in emerging markets equities; 7) The DRS Foreign Developed Markets Composite which includes all research and development account(s), and mutual fund accounts invested in foreign developed markets equities; 8) The DRS U.S. Small Cap Composite which includes all research and development account(s), and mutual fund accounts invested in U.S. small cap equities; 9) The DRS Growth Composite which includes all research and development account(s), and mutual fund accounts invested in the S&P 500 equities. Additional information regarding Swan’s policies and procedures for calculating and reporting performance returns is available upon request.