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F&C use vol edge to smooth market spikes

Multi-manager View

F&C’s multi-manager team has prepared for potential spikes of volatility within rising equity markets by adding a product linked to the Harewood vol edge fund to two of its portfolios.

The Harewood fund provides a hedge against European equity market downturns by profiting from volatility in the Eurostoxx 50 index, as measured by the VStoxx index.

F&C fund manager Paul Carne says the Harewood fund’s investment strategy is based on the implied volatility of options on a three to six-month view – or how the price of options is affected by factors such as market sentiment. Carne says when the fear factor rises, markets fall and the price of options rises, enabling investors to benefit from the resulting premium.

The F&C team bought a sterling-hedged certificate which is linked to the Harewood fund, rather than investing directly, as the Harewood fund has French listing would be difficult to buy within F&C’s Ucits III structure.

The F&C multi-manager balanced portfolio has a 2.25 per cent holding in the certificate, made possible by exiting the Fidelity strategic bond fund. The F&C multi-manager growth portfolio has a 3 per cent holding that was funded by trimming positions in Artemis income, Neptune income and BlackRock UK absolute alpha.

Carne says: “We took a view at the start of the year that markets would go up but we felt there would be greater style shock along the way, with bad news generating profit taking and people worried about a double dip recession. Markets are going up but there are bouts of nasty volatility. We put the certificate into a couple of portfolios to take out the volatility spikes.”

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