Factor Dynamic Hedging Strategy

In this focus we present an alternative hedging strategy exploiting the work of C.R. Hervey (2019). The dynamic strategy consists in building a long short quality portfolio – long on high quality, short on low quality stocks – which would be rebalanced each 6 months. This portfolio would then be attached to our benchmarked equity portfolio (obtaining a portable alpha) in order to mitigate the effect of downturns without the need to time the market.