This is the case in France of funds of funds

Managers are volatility source of yield, while it is generally perceived by their colleagues as a risk and a constraint, or even a nightmare. Their fetish is the VIX (read box), all the fear index, which measures the price of the options. "A major challenge for us is to determine (lower-medium-high) volatility regime change." "To do this, we we support on the macroeconomic research and risk aversion indicators", explains Gilbert Keskin, co-lead managing convertible and derivative in Amundi.

The crisis of May was characterized by a net rise of volatility and large scale movements as the meeting of 10 may, which saw the CAC 40 index leap of 9.66, the 3rd strong growth in its history. "The liquidity of the options listed on major stock indices remained very good in the stronger turbulence observed last month, which was not the case of options on securities." "The institutional and the managers were especially the use of the first to protect their portfolio", says Gilbert Keskin.

To take advantage of the nervousness of stock markets, investors have several solutions, more or less risky. Arbitration of volatility funds are thus designed to beat the remuneration of currency rate (Eonia), and are therefore classified in the categories of diversified funds and absolute performance. Directional funds play either return the average of the volatility, i.e. for example its decline after a bulging or well structurally buyers of volatility, products are then called the "fund long flight". In addition Amundi, other companies such as CCR AM or a "hedge fund" as Capital Fund Management offer products on volatility. "For several months, we have seen a growing interest for our range of fund investors, says Gilbert Keskin.". This is the case in France of funds of funds. In Germany, many investors disappointed by products structured on volatility, turned to our expertise.

Portfolio diversification

One of the benefits of these products is in their "decorrelation" properties Indeed, included in a portfolio of action, the volatility provides diversification: when stock markets fall, it tends to move forward and start when shares go up. Indeed, in the phases of retreat, the value of the debt of the companies reported their capital increases and therefore their risk and volatility. There are however periods, while little frequent, where volatility increases while scholarships are progressing. This was the case for example early 1999 or in the summer of 1997.

Recent work (1) show that add to a portfolio of shares - us here - two types of optional strategies offers best results if they were included separately. The first is to be structural purchaser of volatility. The second is to capture the difference between the implied volatility of an option (such as inferred from its price on the market) and its historical volatility. This difference is generally positive. The reason The seller of options faced potentially infinite losses if things go wrong. Also for to pay against this risk and uncertainty about the level of volatility in the future, seller of options adds a bonus historical volatility passed to fix the price of the options. Purchase of volatility strategy attenuates the decrease in the equity portfolio in the phases of withdrawal of scholarships, and that volatility premium increases performance for a given risk level.

Institutional such as pension funds, insurers and sovereign wealth funds are likely to be tempted by these solutions. The fall of 40 of the global equity in 2008 has left traces in many of these investors, who do not experience such a test, which sometimes threatened until their existence. Investors can adopt a different approach to the volatility, which is not used in the options, the so-called "minimum-variance": it is this time to take the opposite of the volatility and to invest in less volatile securities. Thus constituted portfolio behaves much better than the conventional funds in phases of lower awards and great nervousness.