Zed Francis, CIO and Co-Founder of Convexitas, joined Keith Black, Managing Director of RIA Channel, to discuss risk-based derivative overlay strategies that seek to maintain a constant risk profile.
Convexitas provides a tool to solve a unique problem for advisors using a risk dial to provide a tax-efficient solution for clients who may be overweighted in equities but don’t want to sell assets due to the tax consequences. The investment forward derivative overlay strategy is implemented in separately managed accounts with the goal of generating returns that are negatively correlated to equity markets. Investors can maintain their current portfolio positioning and benefit from derivative overlays in times of declining stock markets. Profits from the derivatives overlay are available during times of portfolio drawdowns and can be used to reinvest or to support income needs without selling stocks in a down market. Tax loss harvesting is facilitated, as the SMA is built as an individualized long-short fund.
Some derivatives strategies are rules-based, such as those who buy puts and sell calls on a calendar-driven basis. Convexitas implements a risk-based system where the portfolio is rebalanced to maintain a relatively constant risk profile.
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