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Convex
Portfolios
Our Strategy
Convex portfolios perform well on a relative basis; any portfolio's performance must be compared against something else to give it context. Convexity results in a positive relative comparison.
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What is convexity?
In investing terminology, convexity is the curvature of a line between two prices.
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In the graph, you can see 'Price 1' on the y-axis, and 'Price 2' on the x-axis.
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The curved line illustrates a convex relationship between the two prices.
What is a convex
relationship between prices?
Think of this as a performance path with exposure to positive returns and reduced exposure to negative returns.
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The convex performance path is accomplished through the combination of the individual price behaviors in relation to each other. When the two prices on the graph are increasing or decreasing the amount that they increase or decrease by is not the same. This is what gives the line its curve, or convexity.
What does convex performance look like?
To understand convex portfolio execution, the best way is to think about it on a relative basis, or when compared to the performance of the stock market.
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In the graph, the x-axis represents the value (price) of the stock market and the y-axis represents the value (price) of the convex portfolio.
Because the stock market can only increase or decrease in value on a one-to-one basis relative to itself (if it goes up (down) by 1%, it goes up (down) by exactly 1%), the 'Market Performance' line bisects the graph perfectly.
But, because the convex portfolio’s performance is curved (not on a one-to-one basis), as the stock market goes up or down, the 'Convex Portfolio Performance' line will behave similarly but not to the same degree (as we learned from the ‘Price 1’ and ‘Price 2’ graph).
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What is real-world convex performance like?
If the stock market drops in value, this will affect the ‘Convex Portfolio Performance' line, and it will decrease. But, the rate by which it decreases relative to the ‘Market Performance’ line is also decreasing. This is why the ‘Convex Portfolio Performance’ line moves away from and above the ‘Market Performance’ line.
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So, we can very clearly see that convexity provides protection when the market goes down into negative territories.
In addition to the value of market drawdown minimization, investors are always interested in the upside of investing and for this reason, convex portfolios also have upside exposure. As a result, when the ‘Market Performance’ line goes up so does the ‘Convex Portfolio Performance’ line.
Therefore, the way to understand convex portfolio performance is that it is limited on the downside when the market drops, but also benefits from the upside when the market goes up.​​
Performance Benefits
Convex portfolios generate more return per unit of risk taken, as well as have many other desirable performance characteristics.
Convex Portfolios
Increased Return for Risk Taken
Our investment strategy is designed to deliver more return per unit of risk taken.
Market Drawdown Minimization
It is always the right choice to minimize your maximum cost.
More Predictability & Less Volatility
A portfolio that navigates the ups and downs of markets.
Greater Capital Preservation
At the end of the list of any investor's goals is losing capital.
