For investors with long-term goals, the most important question is: will you’ll have the money you need, when you need it?
Chasing short-term returns can derail investors from achieving long-term results.
We help investors stay on track to long-term goals by focusing on generating consistent returns and avoiding big losses through full market cycles (both a bull and bear market).
Our Swan Defined Risk Strategy (DRS) is distinct—traditional investment classifications don’t fit our strategy and standard indices are not ideal benchmarks.
So what is the most appropriate benchmark?
We believe the best way to evaluate Defined Risk Strategyperformance 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 area, or the Target Return Band, shown below. In 19 of 20 years, they have been.
This benchmark helps investors see historic year-by-year performance, but also see how the DRS might perform in the future relative to the spectrum of annual return possibilities for the S&P 500.
Source: Swan Global Investments and Morningstar; the S&P 500 Index is an unmanaged indexand 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 put option redefines the risk in equity investing, creating a new hedged equity risk/return profile. The gold line (hedged equity) 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 overlaying the DRS’s historical range of returns from the option premium component on the hedged equity position. The top edge of the blue band is defined by the average returns, while 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.
Long-term investment goals require years or even decades to accomplish, so we believe the objective of long-term investors and the DRS are aligned: produce consistent results, year after year, and avoid big losses through market cycles.
Therefore, the Target Return Band serves as the best benchmark for our strategy.