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SLI positions GARs fund to benefit from volatility

Standard Life Investments has positioned its £11.2bn global absolute return strategies fund to benefit from more market volatility.

The team that runs the GARs fund has bought into the Chicago board options exchange market volatility index, called the Vix, a measure of the implied volatility of S&P 500 index options, in the first quarter of this year.

Speaking to Money Marketing at the Cofunds absolute returns roundtable last week, Standard Life Investments global investment strategist Richard Batty, who is part of the team that runs the fund, said: “By buying the Vix, when equities fall, the assets give you supernormal performance, so you get capital growth when equities fall and buying the Vix acts as hedge for the fund.”

Batty said the S&P 500 was chosen because in this index, the volatility is priced too low for the likely path of equities, which should become more volatile because of the eurozone crisis.

He said other moves in the portfolio this year include buying forward foreign exchange contracts, which involves an exchange of currencies at an agreed date in the future, designed to swap out of more volatile currencies.

Batty said the fund will swap the Australian dollar with the Brazilian real and the Canadian dollar with the US dollar.

He said: “The Australian dollar and Canadian dollar are too expensive and are susceptible when there is a fall in commodity prices.

Both economies are quite leveraged and the currencies reflect too much good news. The real is affected by commodity prices but it yields more than the Australian dollar.”

Premier Wealth Management managing director Adrian Shandley says: “Standard Life Investments has been consistent in volatile markets. It is sensible to prepare for more market volatility at this time. Whether or not such moves will pay off remains to be seen.”

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