Jad Comair : « We have much more interesting entry points to our dividend Futures strategies than those of our competitors in other asset classes »

Next Finance: Last year you launched Melanion Capital, one of the first fund management companies dedicated to dividend Futures strategies. What is your experience, and that of your team on the subject?

Jad Comair: Our teams trade dividend futures since their inception in 2008, and quickly specialized on this product to become the undisputed experts. We are a spin-off of the trading department of Société Générale and we created Melanion in order to offer investors a new source of return on an innovative asset class.

Are there liquidity and depth on the dividend futures markets? What markets do you mainly trade? Equity Index Dividend Futures? Single Stock Dividend Futures?

The futures market dividend represents approximately $ 10 billion today. This is small compared to other financial markets, but significant considering its youth. We trade Equity Index and Single Stock Dividend Futures, mainly large market capitalizations (Blue Chip). The market is highly developed in Europe, where it was born, and Asia is following. However in the U.S., there is no dividend Futures since the CFTC and the SEC have not yet reached a compromise on the regulation of this product.

each shareholder is 'long' an infinite series of dividends and , thanks to the dividend ' futures ' , for the first time in history, investors can ' choose', on which dividend they want to be exposed.

Jad Comair, CEO, Melanion Capital

You talk about a new asset class, could you explain why?

The dividend is a very familiar concept to investors, and many of them hold shares with the main objective being the return they will earn. Several studies show that stock returns come mainly from dividends rather than capital gains, thesis supported by the winner of the 2013 Nobel Prize in Economics, Robert Schiller, who considers that a share is an infinite sum of its cash flows and that we can easily dissect the share as a sum of future dividends paid (it is also by demonstrating that stocks were much more volatile than dividends paid, that he could developed his theory of non- efficiency of market dealers). All this to say, that each shareholder is therefore long an infinite series of dividends and , through dividend futures , investors can "choose" for the first time in history , on what they want to be exposed regarding dividend ( instead of having them all by buying a share) , or just covering the dividend risk associated with the equities they have in the portfolio.

We believe that investors will continue to be interested in these products, which are simpler and easier to understand than stocks. Hence the potential of development in asset class in its own right and the rationale behind the creation of Melanion Capital, with the aim to be a world leader in this market.

How do you see the dividend futures market? You recently indicated that this market could experience the same revolution that the commodities or CDS market where the derivative market has exceeded the underlying. What could prompt investors to operate a cultural revolution and neglect stocks for dividend futures?

First you should know that since its inception in 2008, the market for dividend futures has grown exponentially in a post- Lehman environment where volumes of other asset classes were decreasing.

The reason for this development is that dividend futures is an ideal tool to hedge against the risk of a dividend payment. However, if we look only in Europe, the 50 companies in the Euro Stoxx 50 will pay about 1,000 billion of dividends in the years to come. Imagine the amount of risk to be covered, in a market where these companies have on average cut their dividends since 2008 until today.

Beyond their use as a hedging product, dividend futures are so simple that they should encourage investors to prefer them to equities. A final advantage is the low volatility of dividends with respect to shares, mainly due to the inefficiency of the stock market that relies heavily on psychological rather than fundamental.

Dividends 'futures' on the Eurostoxx 50 anticipate a decline in dividends each year for the next 10 years. But all other asset classes (equities, interest rate, credit, inflation, etc ...) consider an economic recovery in Europe. So we have our entry strategies that are much more interesting than our competitors, trading highly priced assets today.

Jad Comair, CEO, Melanion Capital

The interest on dividend futures actually seems progressing. This is evidenced by the new funds embarking on the niche. However, what is the attraction for investors?

Strategies for dividend futures, like any portfolio management strategy involve risks that need to be managed. The dividend futures strategy at Melanion Capital allows investors to have a new source of return with a very low correlation to traditional asset management strategies. In fact, because we work on a new asset class, we can offer very different performance in terms of timing and amplitude.

Theories of asset allocation demonstrate that it is best to allocate its capital to assets with low correlation, so as to maximize its return - on -risk ratio. Thus, an asset allocation strategy that incorporates Melanion Capital diversifies its exposure while increasing the investor return -to- risk ratio (sharp ratio). In addition, because the futures contract is listed, the counterparty risk is much more limited than in stocks or bonds.

Beyond the interest for investors in terms of diversification, now in this market what are the sources of alpha that you can offer them?

Melanion initially have a very strong expertise in this market, because its team is specialized on these products since their inception in 2008, which allows us to capture a large part of present opportunities therein. In addition, we operate in a market where there is a very strong selling pressure on dividend futures; given the risk not covered I described later (1,000 billion over the EURO STOXX 50 only). To illustrate this selling pressure, you can refer to the Eurostoxx 50 dividend futures, which anticipate a decline in dividends in Europe each year for the next 10 years. But all other asset classes (equities, interest rate, credit, inflation, etc ...) consider an economic recovery in Europe. So we have our entry strategies that are much more interesting than our competitors, trading highly priced assets today.