HomePrivate WealthArticlesOffense Wins Games, But Defense Wins Investing Championships

Offense Wins Games, But Defense Wins Investing Championships

Jason Buck is an entrepreneur and trader specializing in volatility, options hedging and portfolio construction. He is frequently sought out as a volatility expert to speak at industry conferences. After living through 2008 as a commercial real estate developer, Buck became focused on how investors could better manage their risk. He spent the following decade consulting on portfolio construction and building bespoke long volatility strategies for family offices and high-net-worth individuals.

This experience in cross-asset class trading spotlighted the need to create a diversified long volatility and tail risk fund designed to hedge the risks associated with economic downturns. This leads him to launch Mutiny Funds, which aims to offer retail investors access to institutional quality long volatility, tail risk and inflation hedging strategies.

Russ Alan Prince: Tell me about your firm.

Jason Buck: Like most asset managers, our goal at Mutiny Funds is to help investors maximize the long-term growth of their portfolios, but we approach this problem differently than most because of our core belief that: “Offense wins games. Defense wins championships.” 

In an investing context, this means we believe that combining defensive-minded strategies such as long volatility or commodity trend following with offensive-minded strategies such as stocks or fixed income provides the best opportunity for long-term capital growth while reducing drawdowns in the interim. The promise of diversification is to allow investors to improve risk-adjusted returns either by realizing less risk for a similar return or a higher return for the same risk. 

We view true diversification as the ability to accomplish the two things most investors care about in their portfolios. Having a lot of assets in the future. That is, maximizing the long-term compounding or expected terminal wealth of a portfolio. And having enough assets in the interim. That is, making sure that if we need to use our assets for a family emergency, illness, or other unexpected life events—dare I say global pandemic?—in the near term, it will be there when we need it.

We believe these goals are best achieved by putting a stellar defense on the field, built through a team of diversified strategies with different return drivers, which is the best way to facilitate these dual objectives and make the portfolio extremely robust and able to survive whatever economic environment presents itself in the future. 

Our offense plus defense philosophy is designed to be hard to kill regardless of the macroeconomic regime and is embodied in our flagship strategy: The Cockroach Strategy. 

Prince: What kind of expertise do you provide?

Buck: For the last several decades, all of our professional lives, investors have been able to rely on the diversification and negative correlation that bonds provide in the ubiquitous 60/40 portfolios. But if we take a century-plus look at stocks and bonds, they end up being correlated more often than they are uncorrelated.  

We believe the astounding success of classic 60/40 portfolios over the past four decades of declining interest rates and low inflation has lulled many investors into a deflationary stupor of not sufficiently diversifying their portfolios. 

It’s important to remember that other periods have had different experiences. Adjusting for inflation, the S&P peaked at 810 in November 1968 and fell 63% to 300 by 1982. It didn’t return to its inflation-adjusted 1968 level for 25 years, until 1993. Bonds did poorly, too, over the 1970s, which had repeated bouts of high inflation, often being referred to in the media as “certificates of confiscation.” None of us know the future, we believe it is incumbent on advisors to build robust portfolios that can handle any macro environment.  

Our expertise lies in identifying and evaluating strategies and hedge fund managers inside of defensive asset classes like long volatility or commodity trend following as well as properly position sizing and combining them.  

Our research indicates that managers of defensive strategies tend to have large amounts of dispersion. A short-term trend follower and a long-term trend follower can have very different returns based on the path of the market. A quick sell-off and bounce back can be a punishing whipsaw for a shorter-term trend follower but no problem for a longer-term trend follower that stays in the trend and vice versa. We believe that an effective investment strategy requires an ensemble approach to harness that dispersion. We use our expertise to build ensemble portfolios of defensive strategies in a capital-efficient way to protect our clients from unforeseen turmoil.

For clients looking to access these defensive assets on their own, there is a host of issues. One, many sophisticated strategies involving options and derivatives are not easily employed in ETF or mutual fund structures. Two, the devil is in the details, and many so-called alternatives like private credit or managed futures may include more correlation to stocks and bonds than investors bargain for. And lastly, as a practical matter, it can take tens of millions of dollars to properly diversify across an ensemble of actively managed hedge funds. 

Prince: How is the industry changing?

Buck: The industry is in a very exciting place, with the ability for investors and their advisors to access everything from private credit to NFTs, option strategies to Chinese equities, and more at the swipe of a finger on your phone. But how does an advisor work these into a portfolio? And how does an investor decide which alternative strategies to pair with their stock and bond portfolios? 

These are difficult questions, and we strive to simplify the equation by classifying everything out there as either offense or defense. This simple shift away from complex correlations and expected returns and the rest towards a common sense diversification between assets that perform in good times with ones that can perform in bad times.

Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.


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