U.S.
Hedge your liability risk
An overlay strategy uses derivative instruments or leverage to gain portfolio exposures beyond those provided by the underlying physical investment portfolio. Learn more
Overlay strategies are typically used by plans to match liabilities or free up capital for redeployment into high-quality income, equity or real asset strategies. We offer a variety of overlay strategies that can help you hedge your liability risk without sacrificing return.
Bond Overlays
These solutions allow investors to achieve greater interest rate exposure without having to put up additional capital. When selecting the instruments to implement a bond overlay program, liquidity and cost should be considered as they vary significantly by instrument.
Bond Overlay Instruments
- Total return swaps (TRS)
- Interest rate swaps (IRS)
- Bond forwards & repurchases agreements (repos)
Provincial Spread Overlays
From time-to-time, spreads in nominal provincial bond yields relative to Government of Canada yields represent a tactical opportunity that has the potential to capture attractive yield. When used in combination with real return bonds (RRBs), this strategy can be attractive to indexed pension plans as an alternative to the small and illiquid provincial RRB market.
Options-Based Overlays
Option-based overlays can be effective tools to manage the asymmetric funded status risk often faced by pension plans. For example, an equity collar can be used to protect against downside tail risk assuming the plan is willing to forego upside returns above a certain level.