Basketball is decided less by any single play than by who takes more shots. Portfolios work the same way. The mix of stocks, bonds, and cash decides the outcome; the cleverness layered on top rarely moves the needle as much as people expect.
Over long horizons we believe equities do the better job of compounding capital. Owning more of them, while staying risk neutral, is one of the most direct ways to address longevity risk.
It feels safe. We think holding bonds often means quietly giving away purchasing power, because fixed income struggles to keep pace with the real cost of living.
Stocks move more than bonds. So we invest in volatility as an asset class, using hedging aimed at holding that extra growth exposure without taking on extra risk at the allocation level.
Balancing a strong engine — stocks — with strong brakes — hedges — is the formula we believe carries clients to long-term goals.
Aptus was founded and has since grown from former college basketball teammates (pictured below). Our roots are in hoops, and individual workouts reward the things that show up in isolation. They miss the player whose value is entirely in what he does for everyone else — and that player is usually the reason the team wins.
Five players who each score. Nothing connects them, so the parts never add up to more than the sum.
Add the player who makes everyone around him better and the same talent produces a different result.
Aptus teammates, before Aptus.
In our view, the glue guy is a portfolio hedge. Hedges lag in a bull market — there is no way around that. What they do is let the portfolio carry more equity than it otherwise could and absorb the drawdowns that make clients sell. They change the relationship between return and risk rather than competing for return themselves.
At Aptus we treat volatility as an asset class. We own hedges so we can own more stocks. Most readers of our commentary have heard that more than once. But options do more work in our portfolios than hedging alone. We use them to protect the downside, to add yield, and to shape the range of outcomes a client experiences. Those are different jobs, and the same question decides whether each one gets done well: which option, and why?
Buying or selling an option is easy. Choosing the right one, at a cost you can live with, is where the work is. We view every options position on three dimensions at once, whether we are the buyer or the seller. We call them the 3 C’s.
The cost of admission. What the position costs you, or pays you, while nothing happens. Every option loses a little value each day, and that decay accelerates near expiration — which is why cheap-looking monthly protection is often the expensive way to hedge.
The reliability of the payoff. When the bad thing happens, does the hedge actually pay — in the scenario you bought it for, not one that rhymes with it? The strike, the instrument and the path of volatility all decide.
The asymmetric engine. Whether the payoff bends in your favor, or against you, as the market moves further. A put grows exactly when you need it bigger; a short option does the mirror image. Convexity is why options exist — and why they cost money.
No structure wins on all three — every dollar of carry you save or collect comes out of certainty or convexity somewhere else. The white paper works through the tradeoffs structure by structure. For advisors; we will send it over.
Holding more equity only works if the drawdowns are survivable. That is the entire reason options sit at the center of what we do — not as a bet on direction, but as the brakes to help the larger engine stop.
Hedging built to limit the damage in the months that push clients to sell — the ones that do lasting harm to a plan.
Through the unremarkable middle of the distribution, where most months live, harvesting volatility does the work.
Additional equity exposure is what lets a portfolio benefit when the tail goes the other way.
The philosophy is the constant. How it reaches a household depends on the practice and the client.
Core risk-based models plus complementary sleeves, where the allocation argument is expressed as a finished portfolio.
Active option-based strategies an advisor can hold directly and use as asset allocation building blocks.
Views expressed reflect those of Aptus Capital Advisors and are subject to change. This page is educational and is not investment advice or a recommendation to buy or sell any security. Investing involves risk, including possible loss of principal. Fund-specific information, including our ETF lineup, is available at aptusetfs.com.