F&C adds volatility hedge vehicle to MM funds

F&C’s multi-manager team has introduced a fund which offers a hedge against eurozone equity volatility.

The team expects volatility will increase this year, even though it is currently at low levels.

Managed by BNP Paribas subsidiary Harewood Asset Management, the Vol Edge fund is indexed to the forward implied volatility of the DJ Eurostoxx 50, measured via the VStoxx.

F&C has built a 3% position in the £128m Multi-Manager Growth fund and introduced a 2% holding in the £277m Balanced portfolio, by trimming fixed income holdings.

Although equity volatility has fallen over the last 12 months and has begun to plateau, F&C head of UK retail multi-manager Dean Cheeseman says he expects it to increase at some point this year.

"Volatility has come right down, even though prices continue to climb. This suggests investor goodwill on the economic recovery is fading and people are looking for more evidence," he says.

"All you need is for one or two bellwether companies to post results which are slightly off expectations and markets will be rattled. We still also have to unravel the issues around Greece.

"We still think the general trend is upwards, but with spikes of volatility along the way. Markets do not like uncertainty."

Cheeseman says the fund offers the most accessible way to hedge against volatility.

"We could take out a put option, but we do not know when volatility is going to return, it could be next month, it could be three months time," he adds.