AIB Life Defensive Equity Collar

Defensive Equity Collar aims to give exposure to developed world equities, so it invests in shares of companies from developed markets rather than in bonds or cash alone. The fund’s holdings and exposure are spread across regions such as the United States, Eurozone, Japan and the UK. It also uses derivatives as part of its investment approach.

Defensive Equity Collar uses an option trading strategy to provide some protection against significant equity market falls. The fund buys put options to help insure it against severe losses and sells call options to generate income to help pay for that protection. Put options can help limit downside if markets drop sharply, while call options mean the fund gives up some upside if markets rise strongly.

Defensive Equity Collar is designed to reduce volatility by about half compared with a pure equity investment. The option strategy is the main reason for this, because it adds downside protection while sacrificing some of the market’s upside. For an investor, lower volatility means the fund’s value may rise and fall less sharply than a typical share fund.

Defensive Equity Collar is classified as an Article 8 fund and targets investments that support its sustainability goals. It does this by reducing exposure to companies with weaker sustainability characteristics and increasing exposure to those with better ones. In plain language, that means the fund tries to tilt its investments toward companies judged to have better environmental or social characteristics.

Defensive Equity Collar is built for investors who want developed world equity exposure but also want some protection against major market declines. Its risk rating is 4, so it is still a medium-risk investment and is not risk-free. Investors should be comfortable with the fact that the fund can still lose value and that some upside is given up in exchange for the protection feature.