Alpha > Dispersion Strategy


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Strategy focus

LFIS « Dispersion » strategy has been part of our Multi-strategy portfolios since 2015.

This strategy relies on a strong, understandable rationale explained by structural market flows: because of institutional investors hedging their portfolios by buying options on equity indices, index volatility tends to be at a premium to fair value. Inversely, structured products issuance (mostly short volatility payoffs such as reverse convertibles) create a selling pressure on single stock volatility. As a consequence, there is an arbitrage to be exploited between index and stock volatilities.

In other words, a dispersion strategy seeks to harvest the correlation premium in equity volatility markets where implied correlation tends to be expensive relative to realized.

LFIS dispersion strategies target at capturing this premium through a market neutral implementation. We favor vega flat implementation through vol swaps in order to reduce path dependency, optimize market neutrality and benefit from positive convexity.

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.

Simon Lepine

“With a strong quant and derivatives DNA, we are dedicated at capturing opportunities across implementations, instruments and geographies, including tactical allocation between US/Europe markets.”

Simon Lepine

Portfolio Manager @ LFIS