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Victor Viner: Our hedged equity strategy is designed to maximize upside capture while reducing the overall portfolio volatility by providing some downside protection. Our short exposure comes from either selling customized index call options and/or buy index put spreads. We determine which strategies to use based on the current volatility environment and our existing short positions. Our strategy is designed to do well in the kind of market conditions we are currently experiencing as volatility has been rising and there is a lot of uncertainty in the markets. Also, our equities are more defensive than the broader market, and this kind of portfolio tends to do well during periods of high volatility.
MutualFunds.com: This fund style is part of a new investment approach which was previously seen mostly in the hedge fund community. Do you see these new approaches growing and what are other new investing approaches you expect we will see?
Victor Viner: Many hedge funds (V2 included) have been watching the changes in the liquid alts space for some time. For those managers that have more liquid strategies that can meet the requirements of a 40 Act mutual fund, many will find compelling reasons to offer their strategy in a liquid alt structure. I would expect to see more newer managers with smaller asset bases to be early movers but even many of the larger more established funds will eventually go this route. I believe the trend we are seeing will continue to grow with no end in sight. I think the single strategy funds will see the most growth while the multi-strategy funds will need to price themselves more competitively to continue to grow in the 40 act space.
MutualFunds.com: Can you get into specific areas of the market that you see as most attractive currently?
Victor Viner: We are not market timers, and as such, don’t make short term calls. We want and maintain exposure to all 10 of the S&P sectors and are more opportunistic with our short book to take advantage of changing volatility conditions.
MutualFunds.com: What are the short option ideas you are currently using as part of your hedging strategy?
Victor Viner: We sell short-dated customized FLEX index calls options as well as buy customized index put spreads. For both strategies, we are taking advantage of the volatility risk premium embedded in index options. We use these strategies as they both allow our long book to appreciate without the risk that any individual holdings will be called away.
MutualFunds.com: Can you delve into some of your own professional experience and how that will come to benefit investors in the fund?
Victor Viner: I have been trading equities and options professionally since 1982. I have held senior management positions at UBS and Credit Suisse, where I was coming up with derivative solutions for global clients. I also co-founded and was CEO and CIO of a multi-billion dollar options advisory firm, Volaris Advisors, that was acquired by Credit Suisse Group in 2003. Our investors benefit from these experiences as I have traded and managed risk through many market cycles and in different market conditions.
MutualFunds.com: What are the main themes investors should pay attention to as we head into 2015?
Victor Viner: Hopefully in 2015 fundamentals will be the major driver of the equity markets. We continue to like the US as other countries and their economies could be facing headwinds that the US markets shouldn’t experience. Also, volatility should be back, which is good for our strategy.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of MutualFunds.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.
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