Basic Philosophy
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Basis for the Crash Risk Control-strategy is the assumption that capital markets go through lasting periods of different market risks. Risky asset classes like stocks or junk bonds will suffer during a market transition from a risk-on to a risk-off regime. Contrarily, these asset classes will be the outperformers if markets turn back from a risk-off to a risk-on regime.
Key element of the investment philosophy is the understanding of the word Risk. Common knowledge equals risk with volatility, but risk and volatility are far from being the same. First, there will be periods of high volatility in which the risk of losses will be covered by a high expected return. Even more important is the second case, that in periods of low volatility the risk of high losses can become significant. This might be the case at the end of a boom period. Nowadays it is possible to participate in stock markets by using low-costs passive investment strategies like a buy-and-hold strategy on the MSCI World index. For such investors, systematic market risk will remain one of the most important risks involved in investing. An active risk-reducing strategy like Crash Risk Control aims to keep the market return of a buy-and-hold strategy on the long-term while the risk of suffering huge losses during a crash period should be reduced significantly. |
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