Nomura launches alternative alpha fund, its derivatives answer to volatility

News Team, 08/10/2019

Nomura Asset Management today announced the launch of its Alternative Alpha Fund.

This fund seeks to gain returns less correlated to major asset classes by using derivatives and volatility sub-strategies. It is targeting a return of 10 percent per annum with average volatility of below 10 percent.

The types of derivatives the fund will make use of listed options and futures as well as bond futures. This last point is salient given the changes to the US Treasury curve this year and this firm said it will allow them to take advantage of new opportunities in a fluid market as well as offering clients transparency and even daily liquidity.

The fund will take a quant approach to risk premia analysis combined with a qualitative flexibility in execution and implementation. Its aim is to bridge the gap between quant strategies and relative value hedge funds.

It will be domiciled in Ireland as a UCITS product but management will be performed by David Latto (pictured) from Tokyo.

He said: “The changing macroeconomic backdrop in the last decade has led to a shift in the global investment industry. The Nomura Funds Ireland - Alternative Alpha Fund aims to achieve stable returns and daily liquidity via its unique approach of combining yield enhancement and derivative strategies with tail-hedge strategies. The fund will actively invest in options and futures to benefit from market inefficiencies and structural imbalances.”

Some may well raise an eyebrow at a fund investing primarily in derivatives offering daily liquidity although this are listed derivatives and not OTC so the firm won’t be looking for a counterparty for every change they make to the fund. As equity market jitters continue, taking positions in puts, options and futures insulates investors from increased volatility.

The only notably information missing about the fund is its price.  Funds investing in complex instruments tend to be on the higher end of the spectrum and its target of 10 percent per annum did not state if that was gross or net of fees.  With that low a volatility target I’d wager it is gross of fees which suddenly makes the big passive hits of 2016 such as low vol/ high div ETFs quite attractive.

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