Fulcrum’s Equity Dispersion Fund provides investors with dynamic exposure to pure equity dispersion on large cap global indices; the portfolio is biased long volatility and generates a positive carry during most of the economic cycle.
The Fund is mainly focused on discretionary analysis of the derivatives markets and constructs trades to benefit from the compelling positive carry opportunities. Once the ‘where’ and ‘when’ discretionary decisions have been taken, the systematic single stock selection process constructs the portfolio we wish to trade. We orient the portfolio so that it has an excess long volatility exposure to single stock volatility most of the time and we choose to express our views through OTC structures. We believe this implementation and choice of instruments results in the purest exposure to Dispersion, with clear definition of outcome and cost from the outset.
There is significant scope for additional alpha to be added from our proprietary systematic stock selection filter, which has been developed and enhanced over many years of research and practical experience. The Fund is structured so that it aims to add alpha to a diversified portfolio, whilst contributing little additional risk as a result of its structurally low correlation to equities and bonds.
Single Stock Volatility
- Predominantly long bias to global equity volatility
- Consistent exposure to large cap global index dispersion
- Capturing the positive carry from implied correlation in the volatility market
- Additional alpha from timing trade entry, structure, index/stock selection and execution
- Accessing the risk through OTC variance and volatility swaps with top tier banks
- Specialist volatility experience embedded in an established institutional infrastructure
The Fund aims to exploit what we view as pricing inefficiencies in the equity volatility markets with particular reference to the correlation dynamics associated with equity index volatilities and their underlying and related single stock volatility components. Several well-known factors lead to implied correlation trading at a premium to long-term realised correlation most of the time. In addition, we aim to exploit any “axes” that investment banks may have in terms of not being able to warehouse risk that they have acquired as a result of selling structured products and in particular auto-callable structures to their private wealth clients. Finally, we intend to exploit some behavioural tendencies we observe in the relative pricing of volatilities of some single stocks versus other single stocks.
Discretionary Opportunity Identification
Discretionary decision of Where and When
Systematic Stock Selection
The Dispersion Team benefits largely from close collaboration with the wider Fulcrum research team.
Stephen Crewe joined Fulcrum in 2013. He is the lead portfolio manager for our Fulcrum Income Fund and Fulcrum Equity Dispersion Fund, in addition to being an integral member of the broader investment team, where his focus is on volatility strategies. Prior to joining Fulcrum, Stephen spent over two decades with F&C/BMO as Director of Alternatives.
If you have any questions, do contact us and we would be happy to have a chat.
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