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"The increase of correlation across asset classes in recent months has made it difficult for investors to find negatively correlated assets"
Andrew Kaufmann, Barcap |
Although not strictly accurate in its claim that it is the first bank to launch such a product, Barclays Capital can claim some bragging rights with its decision to launch a range of investable foreign exchange volatility indices. The bank says the products will facilitate access to vol and enable investors to underpin alpha and diversification strategies.
Asset class
Barcap points out that the concept of regarding vol as an asset in its own right has gained credence over the past few years and that it has become increasingly used as a barometer to gauge market sentiment, particularly in more recent months. The bank’s suite of FX vol products will initially comprise three indices: BetaVol; SmartBetaVol and AphaVol. The three products have different underlying systematic strategies that are designed to meet varying objectives. They consist of a portfolio of long and short vol positions. The indices are rebalanced each month in response to changing market conditions.
Barcap says FX’s relatively low correlation to other assets makes the products extremely useful as diversification tools. "The increase of correlation across asset classes in recent months has made it difficult for investors to find negatively correlated assets, particularly at times of crisis. We believe that these indices provide an attractive solution," says Andrew Kaufmann, co-head of vol structuring at Barcap.
The bank says that it expects substantial demand for indices, although it remains to be seen how much interest the products will attract. Similar products launched in the past by JPMorgan have generated very little activity, although they proved popular as benchmarks to provide an accurate measure of what has gone on over a period of time in vol.