What is Downside Protection?

Downside Protection is a way to protect your investments using a practice known as hedging. It's simple — Downside Protection helps to prevent loss, enhance growth, and keeps your portfolio strong.

How does Downside Protection work?

Downside Protection uses AI-powered forecasting to identify market risks and to respond with hedging strategies. These risks include overall market movement like a recession or inflation as well as changes in interest rates, market volatility, and oil prices.

The AI predicts these changes, and automatically adjusts your portfolio accordingly.

Since Downside Protection is automatically included in most Investment Kits, all you have to do is make sure it's turned on.

What do I need to do to make sure Downside Protection is working?

Downside protection is universally applied to all Signature Investment Kits. All you need to do is turn it on, and the AI does the rest.

What will Downside Protection actually do to protect my investment?

If the AI predicts change in a particular risk factor, Downside Protection automatically hedges your portfolio in anticipation of the risk. It does so by shifting some assets to cash or hedging assets that will appreciate in value if a specific risk increases.

downside protection activated

The shield icon with "Protection Activated" indicates that Downside Protection is activated.

When you tap into "Protection Activated," you'll gain insight into the Downside Activation approach.

downside protection

Are all my investments covered by Downside Protection?

No. Only Signature Kits are equipped with Downside Protection.

Since other Kits are designed for short-term gains or trends, Downside Protection is not a viable strategy. However, all kits are designed to minimize losses, regardless.

What’s an example of Downside Protection?

If the AI predicts a downward shift in the market, we may increase your portfolio’s cash positioning to allow for stabilization. If the downward shift is predicted to be more extreme, we may add a mix of hedging assets designed to increase in value when a specific risk factor increases.

What happens when Downside Protection activates?

Simply put, for each risk factor, Downside Protection adds hedging assets to counter the potentially negative impact of unexpected changes. This prevents these changes from harming the performance of the Signature Investment Kits you’re invested in.

Does Downside Protection limit gains in my portfolio?

Potentially, yes.

Because we employ active hedging measures, this means the risk of your portfolio decreases in relation to specific factors. This may also mean that, on some occasions, your portfolio does not grow at the market rate.

However, Downside Protection guards your investment, meaning that, all things considered, a portfolio with Downside Protection activated will be in a superior position to a non-protected portfolio if predicted risks do arise.

So Downside Protection is basically hedging, right?

Hedging is a financial strategy that limits the risk to financial assets. So, yes, Downside Protection is a form of hedging. However, Downside Protection differs from competitors’ offerings in several meaningful ways.

First, our AI predicts market shifts and responds accordingly. The AI’s risk monitoring is an ongoing process with updated short-term forecasts and adjustments.

Downside Protection takes a detailed risk assessment that involves not only broad market risk but also interest rate risk, general volatility and oil price risk, all signaled by the multiple neural networks of our AI. The risk assessment also weighs the historical sensitivity of each Kit’s holdings to each of the risk factors.

You can think of Downside Protection as AI-powered hedging on steroids.

Can you give me an example of how Downside Protection would work in real life?

Sure! Let's consider two hypothetical Kits, both with hedging.

Kit A’s assets decrease if oil prices rise, while Kit B benefits from higher oil prices.

If Q.ai’s neural networks predict that the price of oil will increase for the upcoming week, Downside Protection will automatically add a hedge to Kit A and not adjust Kit B.

There is no oil risk hedge added to Kit B because the Kit is expected to benefit from this specific risk factor increasing.

The hedge added to Kit A would be the addition of oil (represented by a crude oil ETF) to the Kit. So, if the predictions were right (both in the direction of oil's price and the correlation between Kit A and oil), we would see the hedged Kit outperform one without Downside Protection.

Let’s do the math:

  • Kit A unhedged: 100% in equities

  • Kit A hedged: 90% in equities + 10% in oil

If the return for equities is -1% and oil increases 15% then the returns are

  • Return of Kit A unhedged: 100% * -1% = -1.0%

Return of Kit A hedged: (90% * -1%) + (10% * 15%) = -0.9% + 1.5% = +0.6%

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