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Harvest Volatility Management on Inflationary Environments and Strategies to Pair Income with Downside Protection

·4-min read

Fed comments, spike in 10-year yields among many factors causing investors to reassess the impact of inflation on different parts of a portfolio

Harvest Volatility Management, ("Harvest"), a leader in options-based yield enhancement strategies, risk reduction, alternative beta and absolute return investment strategies for institutional, family office and high-net-worth investors, has been closely monitoring the market events of the past few weeks, with a particular emphasis on the impact that the potential reemergence of inflation may have on both the fixed income and equity components of investors’ portfolios.

As the recent spike in treasury yields and resulting slump in equities has made clear, there is a growing consensus around the return of inflation that has left both bond and equity investors nursing losses and uncertain about what comes next. Are rising yields a sign of stronger growth that will continue to push markets higher or a signal of growing inflationary pressure? Either way, it seems that a primarily "risk on" approach may no longer be the proper answer for investors.

According to Harvest Chief Operating Officer, Garrett Paolella, the low-rate environment over the last fifteen years since the Great Financial Crisis has forced investors to make the often difficult choice between income and yield. Investors starved for yield could either seek strategies that carry a relatively riskier profile, while those seeking income invested in solutions with less risky profiles, but which have significantly less yield generating potential.

"In our current investment climate, with the Fed staying consistent in their commitment to keeping rates down for the foreseeable future, clients and advisors are challenged to find income replacement investments that can provide current income without taking outsized risks," said Paolella. "At the same time, with growing expectations for at least a modicum of inflation, which Chairman Powell alluded to in comments just this week, and a weakening dollar, the potential for a meaningful loss of purchasing power over time may become a real issue for investors seeking steady income."

Continued Paolella, "This need to marry risk and yield has provided the impetus for the development of new strategies that utilize options to systematically generate income while reducing volatility and mitigating downside risk."

At Harvest, the use of options to deliver innovative solutions that directly address investor needs is part of the firm’s DNA. With this distinct new approach to income generation that uses options to produce consistent cash flow while mitigating the potential for downside risk, investors and advisors now have an investment solution that offers a better overall risk/reward tradeoff between yield and volatility.

Paolella and his colleagues write regularly about their views on the markets, portfolio construction, and more, and can be followed here:

About Harvest Volatility Management

Founded in 2008, Harvest Volatility Management (Harvest) is a leading derivative asset management firm with approximately $3.6 billion in assets under management as of December 2020.

With an expert team of investment professionals with many decades of combined experience managing volatility and option related strategies, Harvest provides its client base of institutional, family office and high-net-worth investors a suite of yield enhancement strategies, risk reduction strategies, alternative beta strategies and absolute return investment strategies that seek to enhance yield and reduce asset class risk exposures for clients.

To learn more about the firm, please visit


This general market commentary should not be the basis of an investment decision and does not constitute an offer to sell or solicitation of an offer to buy any security. The views and opinions expressed constitute the author(s) judgment based on current market conditions, are subject to change without notice, and may differ from those expressed by other areas or employees of Harvest Volatility Management LLC ("Harvest"). Any securities or indices referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by Harvest or by the author(s). In calculating assets under management for Harvest's overlay strategies, Harvest utilizes notional valuations and mandate sizes instead of market values. This document may contain expressions of opinion, which are subjective and may be unsubstantiated, and should not be relied upon in making an investment decision or for any other purpose.

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Patrick Phalon/Chris Sullivan
MacMillan Communications
(212) 473-4442

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