Using Equities to Manage Risk and Boost Returns in a Liability Driven Investment (LDI) Strategy


Defensive equities: While the term is generally used in connection with stocks that possess defensive characteristics, such as stable cash flows and lower volatility, it may also be used to refer to lower-risk securities such as government bonds and preferred shares. Defensive stocks may outperform their flashier counterparts like growth stocks during periods of economic uncertainty when equity markets display a declining trend, but will underperform during periods of economic expansion. 

Funding ratio: A ratio of a pension or annuity's assets to its liabilities. A funding ratio above 1 indicates that the pension or annuity is able to cover all payments it is obligated to make.

Hedging: Hedging is an investment taken out to limit the risk of another investment, insurance is an example of a real-world hedge.

Liability Driven Investment: A liability-driven investment, otherwise known as liability-driven investing, is primarily slated toward gaining enough assets to cover all current and future liabilities. This type of investing is common when dealing with defined-benefit pension plans because the liabilities involved quite frequently climb into billions of dollars with the largest of the pension plans.

Low volatility investing: Low volatility investing means putting your money in stocks with lowerprice fluctuations.


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Exp Date 9/30/2020