Structure Your Portfolio to Play Defense in an Effort to Outperform the Market

Structure Your Portfolio to Play Defense in an Effort to Outperform the Market
Leverage the power of multiple sectors and asset classes with a strategy like MBXIX to strive to better position a portfolio for adverse market environments and long-term success.

A good investment strategy is a lot like a championship-winning sports team: you need a great offense and a great defense. With investing, the concept of defense can often be complicated. Just look at the 60/40 portfolio (60% stocks and 40% bonds), which many investors relied upon for decades as an offense/defense strategy. The uncomfortable truth arose last year as investors had to be reminded that there is no inherent relationship that requires bonds to go up when stocks go down. In fact, we are in the type of environment where it is likely that both can go down at the same time.

Defense-only strategies—put options, volatility hedges, cash, etc.—are also complicated to manage because they either require excellent market timing or the risk of sacrificing long-term returns.

We believe that a winning defensive strategy is one that plays both offense and defense by generating strong long-term returns independent of stocks and bonds. This type of approach can contribute during both bull and bear equity markets. To illustrate this concept, consider the performance of the S&P 500 Total Return Index (offense only) and 60/40 Portfolio versus the Catalyst/Millburn Hedge Strategy Fund (MBXIX) (offense and defense in one portfolio) since 1997 when MBXIX launched.