“There are decades where nothing happens; and there are weeks where decades happen.” – V. Lenin
If anything has become clear in the last twelve months, it’s that we are going to be confronted with unremitting disruptive change coupled with uncertainty and volatility over the course of the coming years. This is currently exemplified by economies propped up by trillions of euros in support measures, ultra-low interest rates, lurking inflation and a structurally high volatility on global equity markets. At the same time, expectations for higher taxes and a stronger focus on stakeholder value instead of profit maximization will put corporate profits under additional pressure. On the other hand, these corporate profits appear to be benefiting from improved revenue models and an impending economic recovery.
Investing is always about making decisions under a cloud of uncertainty. The launch of SAVIN has coincided with an investment climate that has never been so complex and uncertain, warranting the permanent tail risk strategy SAVIN has in place. For us this complexity offers a unique opportunity set that we intend to exploit for several years to come. The conditions we are seeing are among the best in decades.
March return* : 3.0%
YTD return* : 3.2%
*Source: Circle Partners. Net of all fees. Euros.
At SAVIN we aspire to leverage our extensive trading experience and expertise with strategies that are uniquely positioned to compete in this volatile and uncertain environment. We combine analytical work with deep understanding of market flows, explore a large breadth of opportunities and focus solely on the most attractive.
This opportunity based focus resulted in an overweight allocation of risk towards our volatility arbitrage strategies. Setting up positions with an average duration of approximately 4 months. Always maintaining an active trading strategy to ensure our market neutrality. Our margin to equity ratio ended around 30% this quarter. The ratio varies depending on opportunities and will generally be kept below 60%.
Our strategies are uncorrelated to general market direction in that we aim to profit from equity or volatility spreads rather than from movements in markets directly. Market volatility remains historically high and the volatility spike in early March reminded us that volatility is here to stay, resulting in increasing amounts of dislocations, thus opportunities.
The volatility arbitrage strategies involve being long volatility in some instruments and short volatility in other instruments, typically instruments that are closely related. The objective is to identify market inefficiencies and subsequently exploit these by purchasing relatively undervalued derivatives and selling (relatively) overvalued derivatives.
Over the coming quarters we will focus on scaling-up our strategies and continue building a balanced portfolio that can evolve and adapt. Always opportunistic, but with patience. Combining fundamental research with quantitative modelling and a discretionary touch. But above all it’s the experience and expertise of the team enabling us to capitalize on these opportunities and shift capital in response to market opportunities.
Our ambition and purpose is to deliver long term value and uncorrelated returns. Focusing on developing and implementing strategies that create growth, increase returns, and create value over the longer term.
We look forward to sharing more insights early July, after our second quarter. Until then you will receive the monthly performance updates as usual. Last but not least, our door is always open, drop in anytime. If you have acquaintances that might be interested in SAVIN, we always enjoy new discussions.