Coronavirus Pandemic: How Syfe Builds Resilience Into Portfolios

The power of a risk-managed, diversified portfolio

Global stocks have been in turmoil the past weeks. With the S&P 500 now down more than 30% from its February 19 high, investor sentiment has changed from near-euphoria about the prospects of the US economy to widespread panic and anxiety about a possible prolonged downturn.

Many portfolios have been hit hard by the swift and unexpected market drop. Recovery of those losses could take a long time: A portfolio that loses 40% of its value in the current coronavirus crisis will require a 66.7% return over the next one year just to break even.

The right downside protection strategies can shield investors from significant losses, preserving the strength of their portfolios and positioning them to capture the upside as the market makes its eventual recovery. 

Syfe portfolios across all risk categories are designed with this in mind. In this period of unprecedented volatility, our portfolios have remained resilient, with smaller dips in value as compared to the benchmarks and broader market. 

The Syfe Difference 

Syfe’s popular 15% Downside Risk (DR) portfolio dipped 10% from February 24 to March 23, while the comparable benchmark Morningstar Moderate Index lost 21% and the S&P 500 fell 31% within the same time period.

In fact, Syfe has consistently outperformed on a near-daily basis. As seen from the chart below, Syfe’s performance has been steadily improving despite the worsening market situation, based on the increasing percentage difference between our portfolio and the Morningstar benchmark.

How ARI managed portfolios

The key to Syfe’s outperformance lies in our automated risk managed investing (ARI) algorithm. Using the 15% DR portfolio for illustration, this is how Syfe steered our clients’ portfolios through the uncertainty, and helped them avoid potentially large losses. 

Syfe adopts a risk-based rebalancing approach which is activated when the risk within a portfolio either exceeds or falls below an investor’s chosen downside risk level. As ARI detected a sustained increase in market volatility and correspondingly, a marked increase in risk levels across all portfolios, several rebalancing rounds were triggered to ensure portfolio risk remains within its designated risk corridor. 

To re-align portfolio risk with our clients’ risk tolerance, ARI adjusted portfolio weights by pulling back some of the allocations to higher-risk equities and increasing the share of lower-risk bonds. These were the key portfolio changes made to the 15% DR portfolio during our rebalancing rounds. 

As markets continue to be rocked by volatility, the four rebalancings were made to bring portfolio risk back to its target 15% level, and to ensure portfolio risk is still aligned with the investor’s risk tolerance. Switching into lower-risk bonds better protected the portfolio and allowed the investor to dodge a large part of the worsening market slide. This cushioned the impact of the market drop and helped keep investor panic at bay.

Positioned For The Upside 

The change in portfolio allocation is not permanent. Because ARI is designed to keep portfolio risk in line with our investors’ chosen downside risk level, this also means that it will rebalance portfolios again when it detects that market volatility is subsiding. As the market makes its eventual recovery, ARI will increase the shares of equities across portfolios so investors can capture the market upside.

This approach was used during the 2008 financial crisis as well. As markets recovered, the 15% DR portfolio reverted to its historical average allocation of 59% equities and 34% bonds to benefit from the rising market. This ultimately led to the portfolio delivering 10-year average returns of 9.4%, compared to just 7.3% for the benchmark.

This is the Syfe difference. Our risk-based investing strategy delivers better risk-adjusted returns over the long term, and better peace of mind for our clients during this tumultuous period. With the assurance that we are judiciously managing their portfolio risk, our clients are keeping a steady eye on their long-term goals and holding on to their investments.

To learn more about how your investments can benefit from Syfe’s approach, start here. Our dedicated advisors are also here to help you navigate the current complexities. Schedule a complimentary consultation call with them today.