What does very long term experience say about the best way to protect a conventional global 60% equities-40% bonds (60/40) portfolio against drawdowns? In their November 2025 paper entitled "The Best Defensive Strategies: Two Centuries of Evidence", Guido Baltussen, Martin Martens and Lodewijk van der Linden use 220 years of data to compare downside protection alternatives for a 60/40 portfolio. They consider trend-following (return from 12 months ago to one month ago), gold, bonds, U.S. Treasuries, put options and low-risk, quality and value equity factors (over a shorter sample period). They further evaluate two more complex strategies that are long and short subsets of 25 equity, bond, commodity and currency long/short factors based on their respective rolling 60-month return correlations with the 60/40 portfolio:
- Defensive Absolute Return (DAR) - each month long (short) the equal-weighted third of factors with the lowest (highest) rolling correlations.
- Return-improving DAR (DAR4020) - each month long (short) the equal-weighted 40% of factors with the lowest rolling correlations (20% of factors with the highest).
All factors are available by 1878. All factors incorporate a 10% annualized volatility target based on rolling 10-year past volatility. Using estimated monthly returns in U.S. dollars for asset classes and DAR factor returns as described above during December 1799 through December 2021, they find that:
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