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Equilibrium and 7IM turn to derivatives

Discretionary managers Equilibrium Asset Management and Seven Investment Management believe that derivatives are a good investment opportunity in the current volatile, low-return environment.

Last month, 7IM recruited Chris Darbyshire as a senior quantitative investment manager to use derivatives to protect against downside risk. He says the firm is starting to use derivatives more in its multi-manager portfolios. He says: “Derivatives can be used for risk reduction in portfolios and are low-cost. The futures market is more liquid than the stock market and ETF trading.

“In times of systemic stress, many asset classes can become correlated and it is one of the risks that we are worried about. Derivatives can be used to protect against downside risk by using futures or options.”

Equilibrium investment manager Mike Deverell says the firm is finding opportunities to invest in structured products to diversify its discretionary portfolios.

The firm took a 10 per cent position overall across three different kickout products offered by HSBC, Barclays and Credit Suisse. They will provide a return of between 11 and 12 per cent at kickout.

Deverell says: “Assets are correlated now, so it is very difficult for managers to find assets that will provide diversification and a good returns for investors.

“We bought some exposure to kickout plans in October and we are looking at whether to buy some more as you get some good returns and there is some downside protection. These products are not quite as risky as equities.”

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