In 2005 they developed a “directional” euro volatility strategy which trades one-year implied volatility via listed options on the Eurostoxx 50. In 2007, a global volatility strategy was launched trading volatility on a global basket: S&P 500, Eurostoxx 50 and Nikkei 225. The team currently manages six open-ended funds (three in volatility arbitrage and three in directional volatility) that are UCITS III-compliant and offer daily liquidity.
As such, the strategy uses no leverage, and the maximum one year VaR limit (with a 95% confidence interval) is set at 35%. Over the long term, the VaR is half that of equity markets (12.1% currently). The fund went short volatility in October 2008, as volatility spiked to unprecedented levels; the 2008 trades helped make 2008 the fund’s best year.
Yet such extreme conditions are not required for the fund to achieve its performance objective of 7% gross p.a. The fund sells volatility when it is “expensive” (higher than its historical average of 25%) and buys volatility when it’s “cheap”.
Although the managers take a directional view on volatility, they stay neutral on equity market direction. Currently the fund has a positive vega of 1.3, which means that its value increases by 1.3% for each point increase in volatility. The cost of “time decay” is minimized by using options with an average maturity of one year and by actively trading volatility and gamma.
The strategy is optimized by trading the skew (relative cost of puts vs. calls) and the term structure. Amundi Funds Volatility World Equities has a supplementary third engine of performance, related to geographical allocation bets amongst USA, Europe, and Asia.
This strategy is the result of a quantitative process, set out in a “volatility exposure grid”, and a qualitative element, which is the portfolio managers’ discretionary leeway. The contrarian nature of this strategy benefits from market liquidity and flows as the fund is selling volatility when others most want to buy it, and vice
versa.
Avoiding the use of exotic options and sticking to exchange-listed index options allows Amundi to meet the requirements of daily liquidity. Even with €5 billion AUM, the strategy rarely exceeds 5% of daily index option volumes on Eurex.
Key details
Fund name: Amundi Funds Volatility World Equities
Management company: Amundi Asset Management
Promoter: Amundi Asset Management
Status: Open
Inception date: 15th November 2007
Strategy
Kind of fund: Hedge Fund
Strategy group: Relative Value
Sub strategy: Volatility Arbitrage
Region: Global Developed
Asset classes: Volatility (options)
Particulars
Currency: USD, EUR, GBP
Share class name: Class Iu C
ISIN: LU0319686829
Bloomberg ticker: CAMVWIA LX
Domicile: Luxembourg
Listing: Luxembourg Stock Exchange
Fund structure: SICAV
NAV calculation: Daily
Liquidity: Daily
Notice (banking days): 1
Minimum investment: 500,000
Minimum retail: 100
Min. investment currency: USD
Fees
Entry fee: 2.5%
Exit fee: 0%
Management fee: 0.5%
Performance fee: 20%
High water mark: Yes
Hurdle rate: Yes
Hurdle: 6%
Analysis
2010 return: 7.67%
Annualised return: 7.61%
Annualised volatility (monthly data): 5.42%
Sharpe ratio (2%) (monthly data): 1.04
Correlation to S&P 500 (monthly data): -51.75%
Correlation to iBoxx (monthly data): 15.78%
Service providers
Administrator: CACEIS Fastnet
Custodian: CACEIS Bank
Auditor: PricewaterhouseCoopers
