Strategy focus
LFIS « Dispersion » expertise has been forged through our trading experience in Multi Strategy funds since 2015 thus allowing us to combine a systematic strategy with alpha generating discretion (trade timing, instruments, underlyings).
A dispersion strategy seeks to harvest the correlation premium in equity volatility markets where implied correlation tends to be expensive relative to realized. Given that it cannot be achieved via direct trades on the capital market, LFIS “dispersion” expertise offers to capture this premium through a dispersion strategy which is usually market neutral. We do so by combining a short position, on an index or a basket, with a long position on the volatility of the single stocks that comprise the relevant index or basket.
This strategy relies on a strong, understandable rationale explained by the structural market flows: Stock volatility tends to be cheap to fair value and, inversely, index volatility tends to be at a premium to fair value. This is due to structured products issuance (selling pressure on stock volatility) and institutional hedging (buying pressure on index volatility).
Through Dispersion trades, we seek to deliver consistent, attractive returns regardless of market conditions, emphasizing outperformance in environments with high volatility and low levels of realized correlation typically linked to sector rotation or earnings surprises.