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A Performance Analysis of Variable Annuities With Risk Control Find out how a variable annuity with risk control provides caps and floors to the performance of the underlying investment options.
BY Hong Xie

EXECUTIVE SUMMARY



•   A variable annuity is a tax-deferred retirement vehicle with account values linked to the performance of underlying investment options, typically mutual funds.



•   A variable annuity with risk control framework has the added feature of providing caps and floors to the investment performance, which in turn is linked to the performance of the underlying investment options, typically a price index.



•   We construct hypothetical portfolios that allocate between a variable annuity with a risk control mechanism and a blended portfolio of stocks and bonds.



•   Historical performance for the hypothetical portfolios with allocation to products with a risk control feature showed better downside protection than a stock portfolio or a traditional 60/40 stock/bond portfolio in some scenarios.



INTRODUCTION OF VARIABLE ANNUITIES WITH RISK CONTROL



A variable annuity is a tax-deferred retirement vehicle with account values linked to the performance of the investment options chosen by the market participant. The investment options for a variable annuity are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three.

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