Volatility as an Asset
Class
Allianz Volatility Strategy

Stefan Kloss
November 2013

Understand. Act.
Allianz Volatility Strategy
Reasons to Invest

Easy access to volatility
as an asset class

Diversification thanks to
low ...
Content

01

What is Volatility (as an asset class)?

02

Volatility as an Asset Class is Attractive!

03

Investment Phil...
01
What is Volatility (As an Asset Class)

4
Volatility Strategies: different strategies, different results

Long Volatility

Flexible Strategies
•

Flexible strategie...
Flexible Volatility Strategies
Description
•

Flexible strategies can
take both long and short
positions

•

Many of the s...
Flexible Volatility Strategies: An example
Volatility Fund “X”:
Flexible

Source: Allianz Global Investors via fund manage...
Flexible Volatility Strategies: Fund vs VIX
Volatility Fund “X”:
Flexible

Source: Allianz Global Investors via fund manag...
Long Volatility
Description

Pros



These strategies take a
long exposure to VIX or
other volatility indices



Offers ...
Long Volatility: VIX Index
VIX Index

Actual performance would be much worse than the chart, since premia would have to be...
Option Trading Strategies
Description


These strategies seek
an absolute return using
options, e.g. Short
Straddle: simu...
Option Trading Strategies: an example
Option Trading“Y”
using Short Straddle

Source: Allianz Global Investors. Data from ...
Short Volatility Strategies
Description


Pros


Cons

Very attractive high
return/low volatility
profile





Short r...
Short Volatility Strategies: an example
Volality Fund “Z”: Short
Volatility

Source: Allianz Global Investors via fund man...
Short Volatility Strategies: the rationale

Variance Swap Profit Distribution

Source: risklab GmbH. risklab GmbH is a sub...
02
Volatility as an Asset Class is Attractive!

16
Volatility as an Asset Class is Investable and Provides a
Long-Term Chance of Positive Risk

Variance Risk Premium:
17 % o...
Distribution of the Variance Premium

The distribution of gains and losses is not symmetrical



Gains are regular and te...
03
Investment Philosophy and Process

19
Using Variance Swaps for easy Investments in the Variance
Risk Premium
The fund sells variance swaps in order to benefit f...
The Allianz Volatility Strategy is based on the Rules of the
Variance Premium Trading Index™ (VPT)
Details

Index

risklab...
The Allianz Volatility Strategy Offers Good Diversification
Opportunities for the Portfolio

Equity

The fund is oriented
...
The Investment Strategy at a Glance

 The fund (= swap seller) consists of a money-market-oriented portfolio and several ...
Curriculum Vitae of Fund Manager

Dr. Stefan Kloss, CAIA
Director
Senior Portfolio Manager
Stefan Kloss is a portfolio man...
04
Performance and Risk

25
Performance Allianz Volatility Strategy in
Different Market Phases at a Glance
Dec. 2011-March 2012
In addition to the att...
Extreme Intra-Day Movements Are the Strategys‘ Main Risk

 In principle, the VPT index will suffer from extreme
(positive...
Allianz Volatility Strategy

Overview

-

Benchmark
Management company
Sub-manager
Risk class
Fund manager
Financial year ...
Allianz Volatility Strategy
Reasons to Invest

Easy access to volatility
as an asset class

Diversification thanks to
low ...
05
Appendix

30
Implied vs. Realised Volatility

Source: IDS, data from May 2009 – October 2013. Implied Volatility shifted 30 days.
31
Risklab VPT Index vs. VIX Index

Source: Bloomberg.
32
Historic Implied Volatility: VIX February 1990 – October 2013

Source: Bloomberg.
33
Disclaimer

Allianz Volatility Strategy

Investing involves risk. The value of an investment and the income from it may fa...
35
Upcoming SlideShare
Loading in …5
×

Allianz Global Investors: La volatilidad como clase de activo

576 views

Published on

Presentación de Allianz Global Investors

Published in: Business, Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
576
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
9
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Allianz Global Investors: La volatilidad como clase de activo

  1. 1. Volatility as an Asset Class Allianz Volatility Strategy Stefan Kloss November 2013 Understand. Act.
  2. 2. Allianz Volatility Strategy Reasons to Invest Easy access to volatility as an asset class Diversification thanks to low correlation Allianz Volatility Strategy offers the opportunity of participating in the returns of volatility as an asset class. The strategy’s correlation with other asset classes is mostly low. This offers diversification benefits. Please see also the risks at the end of the presentation. Excellent performance Since its launch the fund has registered an attractive performance by systematically exploiting the variance premium. 2
  3. 3. Content 01 What is Volatility (as an asset class)? 02 Volatility as an Asset Class is Attractive! 03 Investment Philosophy and Process 04 Performance and risk 05 Appendix 3
  4. 4. 01 What is Volatility (As an Asset Class) 4
  5. 5. Volatility Strategies: different strategies, different results Long Volatility Flexible Strategies • Flexible strategies can take both long and short positions • Many of the strategies aim to profit from mean reversion behavior of the volatility. The short exposure is established at historically low volatility levels and the long exposure at high levels.  "Hedge" instrument against rising volatility and falling equity markets.  The strategy is the primary objective, which take a long exposure to VIX or other volatility indices  No absolute return profile, benefits from volatility swings and suffers in times of low volatility Short Volatility Option Trading Strategies  The strategies seek an absolute return by using different combinations of options, e.g. to achieve short straddle;  These strategies are very sensitive to changes in volatility  The underlying equity exposure is not eliminated 100%  They aim at generating income through the sale of Volatility, and can for example be realized over rolling short variance swaps  Volatility premiums compound over a long period but can also reveal high drawdowns at high volatility jumps; A performance of the strategy is not guaranteed and losses remain possible. 5
  6. 6. Flexible Volatility Strategies Description • Flexible strategies can take both long and short positions • Many of the strategies aim to profit from mean reversion behavior of the volatility. The short exposure is established at historically low volatility levels and the long exposure at high levels. Pros Purpose Cons • Absolute return profile, can potentially offer good returns in any market phase • Either rules-based or discretionary decisions can create potential problems. • Decorrelation with other asset classes • In times of persistent low volatility, performance weakness because of the long volatility position • In times of persistent high volatility, performance weakness because of the short volatility position • Absolute Return product with little to no correlation with equity (or any other) markets But: mean reversion is an expectation, not a rule: it just doesn’t have to happen A performance of the strategy is not guaranteed and losses remain possible. 6
  7. 7. Flexible Volatility Strategies: An example Volatility Fund “X”: Flexible Source: Allianz Global Investors via fund manager’s website. Data from April 9th, 2009 to June 13th, 2013. 7
  8. 8. Flexible Volatility Strategies: Fund vs VIX Volatility Fund “X”: Flexible Source: Allianz Global Investors via fund manager’s website. Data from April 9th, 2009 to June 13th, 2013. 8
  9. 9. Long Volatility Description Pros  These strategies take a long exposure to VIX or other volatility indices  Offers protection in high volatility environments, especially sharp sell-offs  Benefits from volatility swings and suffers in times of low volatility  Acts as a hedge for unexpected swings in the equity market  Huge gains in very short market stress periods Cons  Very unattractive return profile: not a profitable strategy except during very short periods of market turmoil  Purpose Can be a costly hedging strategy during long spells of low volatility  Hedging out equity risk Long Volatility Strategies are not an asset class outright, rather a hedge for equity risk A performance of the strategy is not guaranteed and losses remain possible. 9
  10. 10. Long Volatility: VIX Index VIX Index Actual performance would be much worse than the chart, since premia would have to be paid out Source: CBOE. Data from April 9th, 2009 to June 13th, 2013. 10
  11. 11. Option Trading Strategies Description  These strategies seek an absolute return using options, e.g. Short Straddle: simultaneously selling a put and a call of the same underlying security, with the same strike price and expiration date. Profit is limited to the premiums of options, but if the underlying security's price goes sharply up or down, potential losses are very high. Pros  Absolute return profile  Potentially high return/low volatility profile  Work very well regardless of market conditions (except during sharp selloffs) Cons  These strategies are very sensitive to changes in volatility  Losses can be very high during periods of extremely high volatility  Purpose  Absolute return product  Decorrelation with other asset classes  Risk profile resembles short volatility strategies The underlying equity exposure is not completely eliminated Option trading strategies offer an attractive risk/return proposition, but are not suitable for every investor. 11
  12. 12. Option Trading Strategies: an example Option Trading“Y” using Short Straddle Source: Allianz Global Investors. Data from April 9th, 2009 to June 13th, 2013. 12
  13. 13. Short Volatility Strategies Description  Pros  Cons Very attractive high return/low volatility profile   Short recovery time from losses   They aim at generating income through the sale of Volatility, and can for example be realized over rolling short variance swaps Decorrelation with other asset classes, except during sharp volatility increases Can suffer high drawdowns at high volatility jumps; Purpose  Absolute return product  Decorrelation with other asset classes The underlying equity exposure is not completely eliminated Short Volatility Strategies offer a very attractive risk/return profile A performance of the strategy is not guaranteed and losses remain possible. 13
  14. 14. Short Volatility Strategies: an example Volality Fund “Z”: Short Volatility Source: Allianz Global Investors via fund manager’s website. Data from April 9th, 2009 to June 13th, 2013. 14
  15. 15. Short Volatility Strategies: the rationale Variance Swap Profit Distribution Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. DJ EuroStoxx 50 data for the period 03/01/2000-31/01/2013. Implied volatility is proxied by the VSTOXX. 15
  16. 16. 02 Volatility as an Asset Class is Attractive! 16
  17. 17. Volatility as an Asset Class is Investable and Provides a Long-Term Chance of Positive Risk Variance Risk Premium: 17 % occurence 20% 0% -20% 83 % occurence -40% 20002001200220032004200520062007200820092010201120122013 Gewinnzone 40% Verlustzone 60%  Variance Risk Premium: Difference between realised variance, calculated based on daily index levels, and implied variance, derived from option prices.  The variance premium is usually negative (here: in 83 % of all observations there is a gain), so selling variance swaps (short positions) will result in gains.  The average risk premium for the EuroStoxx50 during the period 01/2000-06/2013 was -3.8%. Goal: Receive the negative risk premium by regularly selling implied volatility. Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. DJ EuroStoxx 50 data for the period 03/01/2000-30.06/2013. Implied variance is proxied by the VSTOXX. No guarantee for the actual performance of the Allianz Volatility Strategy can be given. Past performance is not a reliable indicator of future results. 17
  18. 18. Distribution of the Variance Premium The distribution of gains and losses is not symmetrical  Gains are regular and tend to be small, while losses are comparatively rare, but larger.  A gain takes place if realised volatilities are considerably below collected implied volatilities (positive risk premium).  30% If realised volatilities are clearly above collected implied volatilities, the short position will result in a loss. 83 % occurence of gains 25% 20% 17 % occurence of losses 15% 10% 5% 0% -19% -15% -11% -7% -3% 1% 5% 9% 13% 17% 21% 25% 29% 33% Movements of the variance premium: Regular, usually relatively low gains and comparatively rare, but higher losses. Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. DJ EuroStoxx 50 data for the period 03/01/2000-31/10/2012. Implied volatility is proxied by the VSTOXX. There is no guarantee for the actual performance of the Allianz Volatility Strategy. 18
  19. 19. 03 Investment Philosophy and Process 19
  20. 20. Using Variance Swaps for easy Investments in the Variance Risk Premium The fund sells variance swaps in order to benefit from the variance risk premium Definition Variance swap: A financial derivative whose payout at maturity is equivalent to the difference between the squared realised volatility (= realised variance) of the underlying during a given period and the variance strike: payout = Notional of the Swap * (realized Variance – variance strike) 1. Trading: OTC (over-the-counter) 2. Liquidity: By now very high for major equity indices in normal market environments 3. Variance strike is equivalent to implied variance and roughly equivalent to the VSTOXX or VIX (new) 4. Main advantage: Permits direct participation in the volatility risk premium 20
  21. 21. The Allianz Volatility Strategy is based on the Rules of the Variance Premium Trading Index™ (VPT) Details Index risklab Variance Premium Trading Index™ (“VPT Index”) (Subversion: Major Markets) Bloombergticker RLABVPT <Index> Investment strategy Systematic sale of variance swaps on equity indices in the framework of a strategy completely determined by rules Universe Variance swaps on EuroStoxx 50 and Standard & Poor’s 500 with lifetimes of less than 3 months Rules  Rules on whether a position is entered into or not (Trading filter and money management)  Rules to determine the volume of a position Main sources of returns  Money market (“EONIA”)  Clearly defined stop-loss limits for individual positions  Variance risk premium (if negative, then positive returns and vice versa) Base currency Euro Main risk  At maturity of the swaps: realised volatility exceeds implied volatility or swap rate  In the short term: significant increase in implied volatility Further risks Exchange rate risk concerning the USD (usually very small) 21
  22. 22. The Allianz Volatility Strategy Offers Good Diversification Opportunities for the Portfolio Equity The fund is oriented towards the Variance Premium Trading IndexTM (VPT). The correlation of the VPT Index to other asset classes is mostly moderate; this applies particularly with regard to commodities and bonds. Alternative Assets Bonds VPT VPT MSCI World DAX Nikkei 225 Euro Stoxx 50 DJ UBS Tremont JPM GBI Global 1 0.61 0.50 0.47 0.52 0.38 0.59 -0.01 1 0.82 0.67 0.87 0.47 0.65 0.14 1 0.55 0.94 0.21 0.49 -0.19 1 0.58 0.34 0.54 -0.14 1 0.26 0.51 -0.13 1 0.54 0.27 1 0.13 MSCI World DAX Nikkei 225 Euro Stoxx 50 DJ UBS Tremont JPM GBI Global Korrelation 1 <.,2 >+0.2 bis +0.6 >+0.6 Source: risklab GmbH. risklab GmbH is a subsidiary of Allianz Global Investors. Monthly data for the period 31/12/1999-30/06/2013. Monthly data in local currencies, i.e. DAX and Euro Stoxx 50 in EUR; MSCI World, DJ UBS, Tremont and JPM GBI Global in USD; Nikkei 225 in JPY. If the currency in which past performance is described is different from the investors‘ domestic currency, investors should bear in mind that, due to exchange-rate fluctuations, the performance may be higher or lower in domestic currency terms. Past performance is not a reliable indicator of future results. 22
  23. 23. The Investment Strategy at a Glance  The fund (= swap seller) consists of a money-market-oriented portfolio and several variance swaps concluded with different investment banks (= swap buyers).  The performance of the individual variance swaps is key for the fund‘s performance.  The counterparty selection is based, among other things, on credit ratings of the counterparties.  The counterparties are regularly monitored by Allianz Global Investors’ proprietary risk management. Allianz Volatility Strategy Money-market-oriented portfolio Payment of implied volatility under the swap transactions Counterparties Swaps1 Variance + Swaps 1 Only cash settlement, no physical delivery or swap of interest returns Payment of realised volatility under the swap transactions 23
  24. 24. Curriculum Vitae of Fund Manager Dr. Stefan Kloss, CAIA Director Senior Portfolio Manager Stefan Kloss is a portfolio manager in the Multi Asset Active Allocation Strategies team of Allianz Global Investors in Frankfurt. Stefan manages the Allianz Volatility Strategy fund since inception 2009. Prior to joining Allianz Global Investors in 2005, Stefan worked as a Manager in the Structured Credit Department of the credit insurer Atradius and as a Systems Analyst with the consultancy McKinsey&Company. He obtained a MSc from the KTH in Stockholm, a master´s degree in mathematics (Diplom-Mathematiker) from the University of Karlsruhe and a PhD from the University of Augsburg. Stefan is a CAIA chartholder. 24
  25. 25. 04 Performance and Risk 25
  26. 26. Performance Allianz Volatility Strategy in Different Market Phases at a Glance Dec. 2011-March 2012 In addition to the attractive risk premium the fund benefited from decreasing market volatility. positive return 140 135 130 125 negative return Dec. 2009-Febr. 2010 Best monthly performance since launch in December (3%). Positive returns despite uncertainty on the markets and declining equity prices. June 2011-Sept. 2011 Large daily movements and extreme implied volatilities result in losses which are limited by the stop-loss strategy. Apr.-May 2010 Extreme uncertainty and considerable equity price swings resulted in losses. implied volatilities more than doubled. Oct.-Nov. 2009 No open trades due to the trade filter. Comparable strategies registered losses during this period. 2nd quarter 2012 Correction involving rising volatility due to weak economic data and concerns over a potential “Grexit”. Staying in the money market proved beneficial for fund performance. 40% 32,0% June 2010-May 2011 Positive performance in slightly rising equity markets due to stable variance premiums. 2nd half of 2012 Uptrend due to improved economic data and additional monetary stimuli in the U.S. Fears over the stability of the eurozone recede and volatility decreases resulting in steady gains for the variance swaps in the fund. 35% 30% 25% 115 15% 110 10% 5% 0,4% 0,3% 0,2% 0,6% 0,3% 0,6% 0,5% 0,7% 2,1% 2,9% 2,4% 0,1% 0,7% 2,9% 1,4% 1,9% 1,5% 0,5% 0,9% 0,8% 1,2% 0,4% 0,7% 0,6% 3,0% 0,6% 0,1% 1,4% 105 3,9% 20% 0,7% 2,0% 1,9% 0,4% 1,1% 1,6% 0,1% 120 0% -0,5% -0,1% -0,1% -0,2% 0,0% -0,2% 0,0% -0,6% 0,0% -0,2% -5,3% -2,2% 90 -0,4% -2,0% 95 -0,5% 100 -5% -10% Figures as of 30/06/2013. Source: Allianz Global Investors (AllianzGI). Calculated at the net asset value, excl. front-end load, distributions reinvested. Calculation according to BVI method (German Investment and Asset Management Association). Past performance is not a reliable indicator of future results. Any front-end loads (for this fund currently 0,00 %) reduce the capital employed and the performance. The volatility of fund unit prices may be strongly increased. 26
  27. 27. Extreme Intra-Day Movements Are the Strategys‘ Main Risk  In principle, the VPT index will suffer from extreme (positive or negative) intra-day movements of the underlying equity index.  However, the index losses will be significantly higher in case of strong negative intra-day movements, as such fluctuations usually result in a considerable increase in implied market volatility. This will lead to additional losses on a mark-to-market basis.  The size of the losses stemming from market slides will depend on the current volatility exposure, which will fluctuate over time due to the strategy‘s rules.  A look at the largest daily losses in the past, which came about under different volatility exposures, shows the following indicative losses. Past performance is not a reliable indicator of future results. indicative daily loss of the VPT index trading day intra-day VIX rise in low medium high movevolatility volatiliy volatility volatility ment points exposure exposure exposure S&P 500 actual loss of the VPT index 19/10/1987 -20,4% 113,7 -1,4% -7,1% -54% -4,75% 31/08/1998 -6,8% 4,7 -0,3% -1,2% -9% -0,46% 11/09/2001 -4,9% 9,9 -0,2% -1,2% -9% 0,00% 15/10/2008 -9,0% 14,1 -0,5% -2,1% -15% -1,59% 27
  28. 28. Allianz Volatility Strategy Overview - Benchmark Management company Sub-manager Risk class Fund manager Financial year end Net assets Allianz Global Investors Luxembourg S.A. Allianz Global Investors Europe GmbH , Frankfurt 4 : conservative Stefan Kloss 31/3/ 334.11 mn. EUR Share class I - EUR IT - EUR P - EUR P2 - EUR PT2 - EUR ISIN LU041 7273579 LU041 7273652 LU041 7273223 LU0671 46552 1 LU071 9861 360 German security no. Registered for sale in A0RGFH DE, LU, IT A0RGFJ DE, LU, ES, IT A0RGFF DE, LU A1 JHRJ DE, LU A1 JRA5 DE, LU, ES Fund currency EUR EUR EUR EUR EUR Distribution distributing accumulation distributing distributing accumulation M in. investment (prospectus) 1 ,000,000 EUR 1 ,000,000 EUR 1 00,000 EUR 50,000 EUR 50,000 EUR Launch date 07/04/2009 1 /201 3/01 1 27/04/201 0 22/1 /201 1 1 1 /201 0/01 2 Share class volume 307.1 mn.EUR 5 - 20.02 mn.EUR - 6.02 mn.EUR - currently 0.50 (max. 1 .00) currently 0.50 (max. 1 .00) currently 0.50 (max. 1 .00) 0.05 mn.EUR currently 2.00 (max. 3.00) 1 .00 0.86 mn.EUR currently 2.00 (max. 3.00) 1 .00 0.69 0.69 0.73 1 .22 1 .21 Front-end load (%) 1 M anagement fee (% p.a.) 1 Distribution fee (% p.a.) TER (%) 2 1 Any front-end load charged at the acquisition of the fund units may accrue in full to the sales partner. The exact amount shall be mentioned by the sales partner during the investment advice talks. This also applies to any trail fees paid by the Management Company to the sales partner from the management fee. 2 TER (Total Expense Ratio): Total cost (except transaction costs) charged to the fund during the last financial year. Source: Allianz Global Investors; data as at 30/08/2013 28
  29. 29. Allianz Volatility Strategy Reasons to Invest Easy access to volatility as an asset class Diversification thanks to low correlation Allianz Volatility Strategy offers the opportunity of participating in the returns of volatility as an asset class. The strategy’s correlation with other asset classes is mostly low. This offers diversification benefits. Please see also the risks at the end of the presentation. Excellent performance Since its launch the fund has registered an attractive performance by systematically exploiting the variance premium. 29
  30. 30. 05 Appendix 30
  31. 31. Implied vs. Realised Volatility Source: IDS, data from May 2009 – October 2013. Implied Volatility shifted 30 days. 31
  32. 32. Risklab VPT Index vs. VIX Index Source: Bloomberg. 32
  33. 33. Historic Implied Volatility: VIX February 1990 – October 2013 Source: Bloomberg. 33
  34. 34. Disclaimer Allianz Volatility Strategy Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors may not get back the full amount invested. Allianz Volatility Strategy is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the laws of Luxembourg. The volatility of the fund unit prices may be strongly increased. Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted by applicable law and in particular not available to residents and/or nationals of the USA. The investment opportunities described herein do not take into account the specific investment objectives, financial situation, knowledge, experience or specific needs of any particular person and are not guaranteed. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer and/or its affiliated companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or willful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. Contact the management company Allianz Global Investors Luxembourg SA in the fund's country of domicile Luxembourg or the issuer electronically or via mail at the address indicated below for a free copy of the sales prospectus, the incorporation documents, the latest annual and semi-annual financial reports and the key investor information document in English. Please read these documents - which are solely binding - carefully before investing. This is a marketing communication. Issued by Allianz Global Investors Europe GmbH (www.allianzgi.com), a limited liability company incorporated under the laws of Germany with its registered office at Bockenheimer Landstrasse 42-44, D-60323 Frankfurt/Main, authorized and regulated by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted. 34
  35. 35. 35

×