A Hedge for Both Tail Risks

Investors Face Dual Tail Risks 

Over their investment journey, long-term investors must navigate full market cycles—large ups (bull market) and large downs (bear markets). Each type of market, bull or bear, presents tail risks.


To achieve long-term goals investors must address both tail risks:

Hedged for Both Tails - Swan Defined Risk Strategy

“Prophesy as much as you like,

but always hedge.” 

-Oliver Wendell Holmes, 1861

Generally, investors are concerned with the risk of major losses, known as Left Tail risk.  This name comes from the concept of distribution of returns, in which the full range of potential returns from an investment or market over a period of time sort of looks like a “bell curve”.  The far left side of that curve, or the Left Tail, represents large-scale losses that statistically occur infrequently.


Yet investors must be aware of another type of risk—the risk of missing out when the market delivers large-scale returns represented on the far right side of the return distribution curve. This “missing out” is known as Right Tail risk.

Traditional portfolio construction relied predominantly on bonds, cash, or hedging strategies to address Left Tail risk and stocks to address Right Tail risk. 


However, the current investing landscape is challenging and the prospects for both bonds and stocks appear bleak.


Investors need new ways to manage both tail risks.


Hedged equity strategies may provide investors a hedge for both tails.

Our Hedged Equity Strategy — A Hedge for Both Tails

Our Defined Risk Strategy is a time-tested hedged equity approach that remains always invested and always hedged.


  • Equity: The vast majority of the strategy is invested passively (buy-and-hold) in a broad equity market index, like the S&P 500, for participation in the market’s upside potential (address Right Tail risk).
  • Hedge: We then apply a distinct hedging process that actively manages longer-term put options to directly mitigate market risk (address Left Tail risk).

Hedged Equity - Hedge for Both Tail Risks-SGI

Navigate & Capitalize

The active hedging process seeks to help investors navigate market uncertainty and capitalize on market weakness:

  1. After big upward moves in the market, we seek to move the hedge level up, much like a rock climber knocking in a new piton as they go higher. 
  2. During big market declines, the hedge offsets some of the portfolio losses and becomes a valuable asset to the portfolio that can be sold to buy a new hedge and more equity at low prices (positioning for eventual market rebound).

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