The Two Best Defensive Strategies?

A research paper from Robeco concluded that the two best defensive strategies are trend and Defensive Absolute Return (DAR) which is a fairly new idea built of course on plenty of data, 220 year's worth from the Robeco paper. We've looked at trend a couple of hundred times so let's focus on DAR, what is it?

Basically, DAR goes short the equity factors with the highest correlation to a 60/40 portfolio and long the equity factors with the lowest correlation to a 60/40 portfolio all as an overlay. We'll use VBAIX as a proxy for 60/40.

I asked Grok to layout whatever factors it could find and build a table of correlations.

From that list, the obvious observation is that all the correlations seem pretty close to each other. Is this going to work? Here's how I tested DAR; with leverage, no leverage and then the Research Affiliates idea of blending momentum, quality and value in a long only fashion which seems like an effective way to use factors. 

The time period is short to easier observe the 2020 Pandemic Crash and the 2022 bear market. 

The drawdown screen grab hovers over the 2022 low and you can see both versions of DAR helped a little. At the low of the Pandemic Crash, the unlevered DAR was the best of the bunch, about 500 basis points better than VBAIX.

There might be something to it but I don't think it lends itself at this point being easily implemented with ETFs. VettaFi doesn't show any inverse factor funds available so anyone wanting to actually do this would need to be able to short the factor ETFs. This would also require monitoring correlations of the various factors as there can be volatility in correlations. The current level from Portfoliovisualizer is much different than what Grok found.

A quick pivot to an old article from the Washington Post about lifting weights, especially for your legs. There was a study cited in the article that said the heavier you lift, the more benefit you get. Well, no kidding. Heavy is relative. Whatever your max is, per the article, do 70-85% of that max for reps. It doesn't matter whether your max for something is 20 pounds or 200 pounds, you should be able to do reps at 70-85% of that number. 

"Leg strength is a critical indicator of wider health and mobility among older people." They also mentioned staving off frailty. Leg strength helps with balance and mobility which leads to much better outcomes in terms of quality of life and independence. 

Do more squats and learn about creatine. Squats doesn't have to mean what is probably the most common version, the back squat. This guy's form is an injury waiting to happen.

I typically do a set of landmine squats

A set of leg press

And then maybe goblet squat, Bulgarian split squat or something that kind of looks like this but with a kettlebell where I only hinge at the knees; it blasts my quads;

Deadlifts and farmers carry also hit the legs. Jump rope, which I do a ton of, helps with calves and more importantly with balance. 

These exercises don't threaten injury the way that back squats do. As far as creatine, I take it. All I am saying here though is to learn about it and decide for yourself. Don't just take it because I said so, as far as that goes I am just some guy on the internet. The way it works is it retains more water in the muscles which expands the surface space of the muscles which in turn makes you stronger and a little bigger. You will not get too big. It is important to drink water regularly. I know one downside is that some people feel bloated, my wife gets that sensation from creatine so she doesn't take it. 

Doing more squats might be the best defensive strategy for aging successfully. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.