Risk-Averse Portfolio for Income

Discussion in 'Professional Trading' started by CPTrader, Mar 5, 2013.

  1. What would you recommend as the constituents of risk-averse portfolio with the key goals of capital preservation and income. That is, you wish to have minimal drawdown, minimal volatility, preserve your capital and generate some income. You can consider this is a form of a Cash-Plus portfolio where you earn say 1-5 % above the current yield on a 1-2yr CD.

    Ideally, the portfolio should be implemented via ETFs..but I am open to any other instruments.

    Thanks in advance for sharing.
  2. You'd want to add some optionality to it, and obviously not through yield-hunting. Infinite possibilities.
  3. sonoma


    More info needed, but I'll assume you don't just want to own bonds since you mention etfs. General concept will be to sell premium on the least amount of equity exposure possible and then add that to the yield on your stable asset class. Minimizing volatile asset class gives you your desired capital preservation requirement.
  4. Thanks. I would prefer to avoid short gamma approaches - at least not explicitly via selling options.

    Ideally I would like a basket (equal-weighted?) of ETFs that track various asset classes in a somewhat hedged way.

    In essence, my thinking is that such a basket, if consisting of roughly hedged positions should hopefully yield a return in the -5% to +10% range.

    The questions:

    1. Is this approach valid?

    2. If so, what should be the constituents of the basket?
  5. try FAX, PPR, IGR or some other low cost CEFs-- 2013 may be a good year here.
  6. sonoma


    Ahh. You're simply looking to own traditional long-delta-only asset positions built on historical correlations?
  7. Not quite.

    1. I will like to have a mix of long and short ETFs. Inverse ETFS can also be used. So it should not be long delta only.

    2. It should not be strictly/solely based on historicla correlations - but this will be a factor.
  8. I am thinking of a basket consisting of:

    1. TLT
    2. SPY
    3. EEM
    4. GLD
    5. USO
    6. UUP
    7. An ETF that contains a basket of high dividend yielding stocks. Any ideas?

    The key questions then would be what should be the weighting for each ETF and determining whether to go long or short the ETF.

    Glad to hear the thoughts of ETs.

    Thank you.
  9. Imo I wouldn't include uso or uup. I'd also take a look at adding some reits (vnq), some credit exposure (HYG and some inv. grade like AGG), and you could also take a look at some mlps for yield (amj/amlp?).

    As far as weighting, I'd use vol weighted (IBwhatifratesriseomg).

    You could try to come up with tactical hedge if you'd like to get some short exposure, but imo there's nothing wrong with being long only. HTH.
  10. Thanks!

    What does this mean: IBwhatifratesriseomg?
    #10     Mar 6, 2013