portfolio insurance

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Portfolio insurance

A strategy using a leveraged portfolio in the underlying stock to create a synthetic put option. The strategy's goal is to ensure that the value of the portfolio does not fall below a certain level.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Portfolio Insurance

A strategy used to protect against potential losses to a portfolio. For example, one may short sell futures contracts on securities in a portfolio where one makes a profit if the securities decrease in price. Alternatively, one may buy put options allowing one to sell the securities at a predetermined price regardless of market movements. See also: Hedge.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

portfolio insurance

The futures or option contracts that serve to offset in whole or in part changes in the value of a portfolio. For example, a portfolio manager might sell short stock-index futures to hedge an expected decline in the market value of a portfolio.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Bradshaw made a comparative case for diversification by explaining that in the U.S., most individuals have integrated non-traditional asset classes to hedge: "One does not necessarily need to be a sophisticated investor to understand that a basket of diverse investments enhances portfolio protection." He went on to add, "In the U.S., investors have been victims of volatile markets and have learned the importance of 'not keeping all your eggs in one basket'." In the long run, this will help an investor generate stronger, stable returns as opposed to temporary short-term gains.
A study released this month by Lincoln Financial finds many savers are concerned about portfolio protection, especially as they approach retirement.
Costs fell enough that fee-only financial planners who traditionally had shunned these loans started to recommend them to wealthier clients as a portfolio protection strategy.
Today, however, the environment is completely different and the benefits of holding bonds as a portfolio protection mechanism are simply not worth it, considering the risks.
We can't predict the future, but there are options for the tactical thinkers and longer-term solutions for portfolio protection out there on both sides of the trade.
Woodall further opined in the report that this approach of portfolio protection is vastly different from the Modern Portfolio Theory approach of using bonds to offset stocks during times of sudden market changes but is definitely proving to be more effective in recent times.
Portfolio protection becomes less "important" and that performance drag caused by diversifiers in an up market becomes a source of frustration and impatience for clients.
"It's a massive drop, and investors are indeed lowering their portfolio protection, but the expiry of options and futures contracts tomorrow is also mechanically fuelling the drop," a Paris-based derivatives trader said.
For investors who are in the market and nervous, but don't want to close their positions, the cost of portfolio protection is relatively low.
The key is having portfolio protection in place now so that it won't devastate your fixed-income holdings and reduce your future quality of life.
The concept of portfolio protection can be combined with liability-driven investment strategies meant to target the other source of pain being inflicted upon pension plan portfolios: low and stagnant interest rates.
"Both our consumer research and the index have shown the value in securing adequate portfolio protection. Without this, retirees can expect to feel the pinch."

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