Parametric Portfolio Associates has added a new Liquid Alternative strategy to its suite of Volatility Risk Premium (VRP) strategies.
The Parametric Liquid Alternative strategy is designed to provide investors with a diversifying risk premium that targets risk-adjusted returns similar to many hedge funds. The strategy employs a mix of fully collateralised S&P 500 Index options, creating an effective beta targeted by many hedge funds, but without the complicated structure, leverage, illiquidity or high fees typically associated with them.
The Parametric VRP strategies include a spectrum ranging from covered calls to cash-secured put selling, and include hybrid strategies which vary the underlying portfolio as well as the mix of options. All of these strategies are designed to target a client's specific risk/return objectives.
Tom Lee, (pictured) Managing Director – Investment Strategy and Research, Parametric Minneapolis Investment Center, says: "We are launching the Liquid Alternative strategy to meet a growing demand for strategies that seek to reduce volatility through the introduction of a diversifying risk premium. Additionally, our clients have asked us to deliver a liquid, low cost solution for core hedge fund allocations."
"With over 20 years of experience managing volatility risk premium strategies, Parametric assets under management have more than doubled from $4.5 billion at the end of 2012 to nearly $10 billion at the end of 2015," Lee says. "According to our research, a long-term approach can successfully generate incremental returns over time, and can be more effective than other, more tactical strategies. These strategies are designed to consistently access the persistent VRP associated with selling equity index options. This disciplined, systematic approach removes the challenge of emotions commonly associated with actively managed strategies."
