thewealthnet     About Us    |    FAQs    |    Contact Us
  Advanced Search       RSS Feed  twitter  linkedin 
Welcome to thewealthnet    |   Europe, Middle East & Africa Get The App   |   Login
  Wed 23rd Jan 2019  |    Make this my homepage  
Subscribe now!
Credit Cards Accepted
World Map
Investors can still profit from systematically selling volatility, NN Investment Partners says
14/06/2018 , News Team

After years of stability, the return of volatility to global markets in February 2018 saw those not predicting it suffer substantial drawdowns. NN Investment Partners (NN IP) demonstrates the continued attraction of systematically selling volatility, regardless of the prevailing level of volatility, with expected returns exceeding losses over the long term.

Strengthening economic conditions and accommodative policies made last year the least volatile year in decades. The existence of the Volatility Risk Premium combined with the VIX ‘fear index’ dropping to a historic low, made the selling of volatility a rewarding strategy. However, in 2018 volatility returned with a vengeance. 

On 5 February, expectations of higher inflation and the spectre of increased Federal Reserve rate hikes caused the VIX to undergo its largest move in history. The resulting fallout led to the closure of the XIV (an exchange traded note which was short volatility and shut down after triggering a termination event) and an equivalent ETF (SVXY) lost almost 90 percent of its value.

However, NN IP shows that investors can still profit from systematically selling volatility. Such a strategy relies on capturing the Volatility Risk Premium, which is the difference between implied volatility (priced into options) and subsequent realised volatility.

Buyers of implied volatility are willing to pay a premium as it enables them to transfer risk off their balance sheets, comparable to buying insurance while expecting, and often even hoping, it to generate a loss.

Stan Verhoeven, senior portfolio manager factor investing and solutions at NN Investment Partners said: “Selling volatility comes with significant short-term risks, however long term gains should sufficiently compensate for future tail-risk events. It is better therefore not to try timing the next tail-event, but rather take a long-term approach and manage the embedded risks by investing in a broader set of diversifying factors.”

NN Investment Partners is the asset manager of NN Group N.V., a publicly traded company listed on Euronext Amsterdam. NN Investment Partners is headquartered in The Hague, The Netherlands and manages approximately EUR 240 billion in assets for institutions and individual investors worldwide. NN Investment Partners employs over 1,100 staff and is active in 15 countries across Europe, US, Latin America, Asia and the Middle East.

Share with Linkedin Share with Twitter
Poor   Average   Good   Excellent
thewealthnet archives contain 50,925 articles dating back to 1997,making it the largest single source of information on the wealth management industry world-wide. To search for more articles, please click here.


© This article originally featured on thewealthnet. It is protected by international copyright law. If you copy this article illegally, you will be liable to prosecution. All rights in and relating to this article are expressly reserved. No part of this article may be reproduced, stored in a retrieval system or transmitted in any form or by any means without written permission from the publishers.

    Latest Headlines:    by Topic | All News
  Advertise   |   Contribute   |   Press Release   |   Terms of Use   |   Privacy   |   Contact Us Copyright Pam Insight Ltd., All Rights Reserved