Research & Articles

Lessons from the stock price correction induced by the volatility market

How did disproportionately aggressive short VIX products make global stock prices plummet with 10% in February? How to properly dose volatility risk premiums to generate an attractive return stream?

This article by German specialist RP Crest discusses how managers again knowingly took too much risk when handling third-party assets in aggressively structured short vol products like “XIV & Co”. They discuss which mechanisms can be installed to ensure a better alignment of interests between investors and managers to offer volatility risk premium products that make sense in the long run.

Upsurge in complex Mergers and Acquisitions bodes well for Merger Arbitrage

The new US tax code has triggered an upsurge in complex mergers and acquisitions (“M&A”) creating a strong outlook for research-intensive merger arbitrage strategies, explains TIG Advisors, LLC’s Drew Figdor.

Short of a bear market, Mr. Figdor believes that M&A activity will accelerate in 2018 from its already high levels. With complex deals “trading way too wide”, he anticipates research-intensive strategies are well positioned to succeed in this current environment.

What are Volatility Risk Premia?

In the current capital market environment, investors are increasingly looking for alternative sources of returns. One of them is the volatility risk premium which, from an economic point of view, is the compensation for providing insurance on capital market losses.

This video from the specialist German investment manager RP Crest, provides an economic and intuitive illustration of what the volatility risk premium is, what its characteristics are and how the trading process works to consistently capture this risk premium.

How to select outperforming Alternative UCITS funds?

Do outperforming managers exist or are they really just lucky managers who got a fortunate roll of the dice? How can we even define and measure manager talent? Assuming we found a model to spot outperformance, how does one build optimal portfolios of Alternative UCITS funds? An upcoming academic publication “The Alpha and Beta of Equity Hedge UCITS Funds – Implications for momentum investing” by Nabil Bouamara (KU Leuven) et al. goes in great depth answering these questions for Equity Hedge Alternative UCITS, we’ll provide a short synopsis here of the methodology and main results.

What are Alternative UCITS and how to invest in them?

The purpose of this paper is to provide some insight in the European Alternative UCITS market. Alternative UCITS are collective investment funds that comply with rather stringent European fund regulation whilst exhibiting an investment management approach that is different from traditional asset management funds. Positive performance in all weather with a good trade off to risk is the aim. Attractive as a separate asset class in a portfolio? Let us try to answer this question in what follows.