What characterizes the Market Defensive Fund of Funds (FoF)?

The Market Defensive Fund of Funds (FoF) is characterized by its design to have a negative correlation with major market indices. This positioning aims to provide a hedge against market downturns, which is particularly important for investors seeking to protect their capital during adverse market conditions. By being negatively correlated with the broader market, these funds can potentially generate returns when traditional markets are falling, thus offering a level of risk mitigation.

In terms of portfolio management, this strategy often involves investing in asset classes or strategies that are expected to perform well in turbulent market environments. For example, this may include investments in alternative assets or strategies that are less sensitive to market movements. The objective is to create a more stable and less volatile return profile during periods of market stress, which aligns with the goals of defensive investing.

The other options do not align with the characteristics typically associated with a Market Defensive Fund of Funds. High volatility and low mean returns would suggest an unfavorable risk-return profile, which is not the intention of a defensive strategy. Similarly, a focus on mostly long positions in equities would expose the fund to market risk, which contradicts the defensive premise. Lastly, correlation with high-yield bonds may imply a risk-seeking behavior, moving away from the goal of capital preservation that