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If history is any guide, we should be closer to the end than the beginning of a bull market in equities – the largest source of risk for most portfolios. This is particularly the case as the extreme measures used to stabilize the world economy as the throes of the Global Financial Crisis are winding down, while political risk is on the rise, including in major developed economies. Mitigating that risk over the next 10 years may be essential, but doing so without sacrificing the need for capital growth is the challenge. That’s the rationale behind defensive equity investing.

Case for Defensive Equity Investing

Most investors require the returns associated with equity allocations despite the resulting increased portfolio volatility. Even with a historically long equity bull market, many DB plans remain under pressure to close funding gaps. Portfolio returns are challenged to keep up with growing liabilities. DC plan participants face a similar dilemma. Today’s low interest rates and increasing life expectancy present challenges for all types of investors.

It’s no wonder we’ve seen surging interest in defensive equity strategies. An equity strategy that can deliver less risk and the same or more return changes the value proposition of equities – typically the largest contributor to overall portfolio volatility. Regardless of your investment objectives, adding defensive equity strategies has the potential to unlock several benefits (Figure 1).

Potential Benefits to DB and DC Plans

Funding in a Low Return Environment

Whether you’re paying out benefits from a DB plan or helping DC plan participants generate retirement income, implementing defensive equity strategies potentially improves funding status, and that may be especially true in flat or down equity markets.

We’ve been in a 10-year equity bull market, but what if the next 10 years don’t look as rosy? What if they look like the first 10 years of the millennium instead? Imagine drawing down from an equity allocation between 2000 and 2009 when the annualized return for MSCI World Index was just 2.8%.

During this period, a simple 4% withdrawal rate adjusted for inflation each year by 3% would have cut a cap-weighted portfolio value by over 25%. In contrast, values for a hypothetical global low volatility portfolio actually increase by over 25% (Figure 2). Market drawdowns reduce the capital upon which to compound returns and that can have a significant impact on funding status for pension plans or individual investors.

Withdrawals Against the MSCI World Index-1

Learn More

The current market environment is driving many investors to take a hard look at defensive equity investing. That’s why we’re offering a fresh look at the topic: How to Make Equity Allocations More Resilient.


How to Make Equity Allocations More Resilient  A fresh look at defensive equity investing. Download Paper


The information expressed herein is subject to change based on market and other conditions. The views presented are for general informational purposes only and are not intended as investment advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation, or sponsorship of any company, security, advisory service, or fund nor do they purport to address the financial objectives or specific investment needs of any individual reader, investor, or organization. This information should not be used as the sole basis for investment decisions. All content is presented by the date(s) published or indicated only, and may be superseded by subsequent market events or other reasons. Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal and fluctuation of value. Hypothetical performance results presented are for illustrative purposes only. Hypothetical performance is not real and has many inherent limitations. It does not reflect the results or risks associated with actual trading or the actual performance of any portfolio and has been prepared with the benefit of hindsight. Therefore, there is no guarantee that an actual portfolio would have achieved the results shown. In fact, there will be differences between hypothetical and actual results. No investor should assume that future performance will be profitable, or equal to the results shown. Hypothetical results do not reflect the deduction of advisory fees and other expenses incurred in the management of a portfolio.