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Risk Control with Maximum Exposure

In this paper, we introduce alternative approaches to risk control that aim to maximize exposure to non-cash assets, and compare them against classic risk-control approaches. We began by applying various risk-control approaches to the MSCI ACWI Index, and evaluated each in terms of performance, exposure and sensitivity to varying leverage and volatility-target levels.

In the exhibits below, we compare the risk-adjusted and absolute performance of simulated risk-control approaches, highlighting three key takeaways:

  1. Risk-control solutions delivered higher risk-adjusted returns than the parent index.
  2. The Treasury security solution outperformed the cash solutions.
  3. The max-exposure solution provided the highest Sharpe ratio improvement.

Sample period: Jan 1, 2002 – Oct 31,2021. VT=10%, Leverage Cap =150%. For illustrative purposes only. Past performance is not a guarantee of future results. There can be no assurance of any investment outcome. Simulation and model results may differ materially from actual results, and related assumptions. Simulations and models may show better or improved investment performance versus actual investment returns.

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