Given recent market volatility, there has been a greater focus on analyzing the tradeoff between upside growth in equities and downside protection in defensive equity strategies. QMA’s US Market Participation Strategy (MPS) was designed in 1992 to participate in about 65% of the market upside with only about 30% of the downside of the S&P 500 Index. This combination of reduced maximum drawdown with significant upside capture has provided annualized returns in line with the S&P 500 Index over the long term—but with significantly less volatility. This strategy is guided by our portfolio management team’s almost 30 years of experience (as of Jan 01, 2020) in designing and managing MPS (inception date Jan 01, 1992).
In our study, we compare various defensive equity strategies to MPS, which combines S&P 500 Index call options and US Treasuries. We find that MPS not only compares well with, or outperforms, most of the other defensive strategies, but it does so consistently during significant equity market drawdowns.