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Evaluating Downside Protection

Investments, Investment Views

Semi-deviation (also called downside deviation) is a variation of the more commonly used metric, standard deviation. Both measures track the historic variability of returns around an investment’s average return, however, semi-deviation only considers those returns that fall below the investment’s average. A lower semi-deviation indicates an investment with lower downside risk.

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Downside Protection Strategies

Investments, Investment Views

My last blog discussed the importance of downside protection, specifically looking at the asymmetry of gains and losses, and poor historical investor behaviour. This blog will investigate some strategies investors can implement to potentially protect their portfolio from significant losses in down markets, while still allowing them to participate in rising markets.

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Importance of Downside Protection

Investments, Investment Views

Markets go up and markets go down. That’s the nature of investing in stocks and bonds, whether directly or indirectly through investment funds. Investors generally like upside volatility (when markets go up), but are much less tolerable towards downside volatility (when markets go down). Implementing downside protection strategies regardless of current market conditions can help reduce volatility when markets do go down, thereby helping to preserve and build wealth over the long-term.

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The Fiscal Front

Investments, Investment Views

The European Central Bank (ECB) announced a number of new policy initiatives on March 10, including:

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Market Volatility Perspective

Investments, Investment Views

Global stock market volatility accelerated in recent days on renewed global economic weakness concerns. Continued economic and stock market weakness in China has received much of the blame for the recent volatility. Last week’s devaluation of the Chinese renminbi against the U.S. dollar was an attempt by the Chinese government to boost exports, but may also signal an economy that is weaker than official reports indicate.

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Bond Market Update

Investments, Investment Views

The old proverb “may you live in interesting times” certainly applies to the bond market these days. It has been an extremely volatile year so far, with Government of Canada 10yr bond yields dropping from 1.80% at the start of the year to a low of 1.24% in February. But since then they’ve bounced right back up to around where they started!

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UK Election Implications

Investments, Investment Views

The referendum is pretty much a done deal now, although the outcome of the referendum is obviously unknown at this time. Generally, in my experience, there is a lot of hype when there is an upcoming referendum but when people go to vote, there is a bias towards the status quo (as seen in Scotland recently). So I would not consider the Conservative win as the expression of peoples' desire to leave the European Union (EU) - but rather the inability of the Labour party to offer much to the people in this election.

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Can Active Managers Beat Their Benchmark? Yes.

Investments, Investment Views

In the ongoing debate between active vs. passive investing, Invesco has released a whitepaper examining the historical outperformance of active management.

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The Upside of Downside Protection

Investments, Investment Views

Some of my fellow blog writers have previously commented on the benefits of downside protection through the teams’ value oriented approach to investing. For example, Nessim Mansoor wrote about Rule #1 and Gaelen Morphet wrote about The Asymmetrical Nature of Risk and Return. Today, I’d like to look at it from an asset allocation point of view.

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Swiss Surprise!

Investments, Investment Views

When we think of Switzerland, a few things instantly come to mind – chocolates, watches, the Alps, and Swiss Banks among other things. One thing that doesn’t is surprises, and that is exactly what we got last week. The Swiss National Bank (SNB) decided to abruptly end more than a three-year peg with the Euro. The peg was initiated in 2011 with the big Swiss exporters in mind but maintaining the peg in the face of likely game changing monetary policy initiatives by the European Central Bank probably seemed too risky.

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