Weekly Client Letter – November 13, 2023

“Drawdown” is a financial term used to describe how much loss a portfolio or position has experienced in a given date range from its high point (also known as peak). Most of the time you will see headlines only capture the extreme of the scenarios. They focus on “all-time highs” or the “lowest lows” when most of the investing journey happens between these two points.

For example, the S&P 500 Index, a widely followed U.S. equity index, is down at least 10% for over 35% of the time since 1950. If you look at how often the index is in a “bear market” or down 20% or greater, this is more than 16% of the time. Understanding these periods is critical to understanding the risks that exist with investing.

Here at Redwood, our RiskFirst® strategy diligently focuses on managing these ‘peak-to-trough’ drawdowns. This approach helps us make disciplined investment decisions, strategically positioning your portfolio with the objective to mitigate the impact of these downturns on your overall financial plan.

By placing significant emphasis on managing drawdowns, our primary goal is to ensure that your portfolio and financial aspirations remain on course, consistently serving your ultimate financial objectives.

Drawdown Doctrine

Weekly Client Letter November 13
Source: Bloomberg, Redwood. Data as of 11/10/2023. The date ranges are from 1/3/1950 – 11/09/2023. For illustration purposes only.
  • We believe the preservation of capital is key to consistent, long-term investment success.
  • Our investment approach is grounded in economic theory and backed by quantitative analysis.
  • Managing drawdown risk is a pillar from which we build our portfolios.

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