Hedged equity is an investing approach that invests in equity (stocks) for growth and seeks to hedge (mitigate) against big losses.
Hedging is simply the act of seeking to mitigate potential losses.
Hedged equity may preserve irreplaceable capital while providing the potential for growth
Hedged equity involves buying equity in some form and then securing a hedge to offset losses connected to market risk.
Hedged Equity vs Hedge Funds
Many investors may have a negative association with the word "hedge" because they associate it with "hedge funds." However, hedging does NOT equal hedge fund. Often, the purposes of the two are at odds with one another.
Typically, one hedges to reduce the negative impacts of market risk and volatility in a portfolio. The hedge is intended to offset potential losses by transferring risk in various ways (e.g., options, shorting, or futures contracts).
Hedge funds often take on risky positions and borrow money to increase returns. These risky positions and strategies are at odds with the traditional purpose of hedging.
The True Purpose of Hedging
Hedging seeks to do the following:
Hedged equity focuses on hedging risk and losses in stock market investments. Because stock markets are volatile and prone to life-altering bear markets, hedging your wealth invested in stocks is crucial for long-term investment success.
Hedged equity seeks to dampen an investment's volatility and keep investors in the market.
Defined Risk Strategy Hedged Equity Approach
We developed the Defined Risk Strategy to help investors remain always invested, always hedged so they can meet their long-term goals.
We hedge to minimize the impact of market risk and volatility on investment outcomes. In doing so, we seek to preserve irreplaceable capital while generating a consistent, smoother investment experience for long-term investors.
We apply a unique hedging process using options to directly address market risk and to define the risk of loss on an annual basis. Our Defined Risk approach to hedged equity has redefined the risk/return profile of equity investing. Learn more here.