Summary
- In March, I presented a hedged portfolio built around a position in Verizon, designed for conservative investors unwilling to risk a decline of more than 12%.
- These portfolios last six months, so here, I update this one's final performance.
- This one returned 8.71% over six months, outperforming its expected return of 6%, and coming within 9 basis points of SPY's return over the same time frame.
- Looking for a helping hand in the market? Members of Bulletproof Investing get exclusive ideas and guidance to navigate any climate. Get started today »
Workers in Verizon's Wireless’s National Accessibility Customer Service (NACS) Center. Photo via Verizon.
A Hedged Portfolio Around A Verizon Position
In August of 2018, I wrote about the performance of a bulletproof, or hedged, portfolio built around a position in AT&T (T) in 2017 and presented a new one, which completed in February (each portfolio lasts for six months). Following that, I began presenting hedged portfolios built around other stocks, including Verizon (VZ) in March. Let's see how our Verizon portfolio finished at the end of six months. First, a reminder of how the portfolio was constructed and what it consisted of.
Constructing The March Verizon Hedged Portfolio
We used the Hedged Portfolio Method to build a concentrated portfolio around VZ in February starting with these premises:
- You had $500,000 to invest.
- You were unwilling to risk a drawdown of more than 12% during the next six months, so you wanted to be hedged against any decline greater than that.
- You wanted to invest in a handful of names, including VZ, with a goal of maximizing your expected total return net of hedging costs.
These were the steps involved for those who wanted to do this manually (your returns would obviously have varied based on which approach you used).
Step 1: Estimate Potential Returns
The goal of this step was to find names that had the potential to generate high total returns to include alongside VZ. My site calculated its own potential returns by analyzing adjusted price history and options market sentiment, but you could have derived yours from Wall Street price targets or the price targets given by Seeking Alpha contributors you follow. Your initial universe could have been as big as my site's (the ~4,500 stocks and Exchange-Traded Products with options traded on them in the U.S.) or something smaller, such as the Dow 30.
