Aviva Investors launches innovative index arbitrage fund to external investors

Aviva Investors today announced the launch of the Aviva Investors Index Opportunities Fund to the french market.

The UCITS III fund aims to take advantage of the pricing inefficiencies generated when equity indices are rebalanced through the use of active stock analysis and portfolio construction skills, alongside index analysis and value added execution. Part of Aviva Investors absolute returns range, the strategy is constructed to be uncorrelated to other asset classes, providing diversification benefits to investors looking for absolute returns.

Lead managers Iyad Farah and Ned Kelly, supported by a team of seven fund managers and analysts monitor up to 25 indices across Europe, North America, Asia Pacific and Emerging Markets. Each of these indices rebalances between one and twelve times each year, forcing passive funds to adjust their portfolios at the same time thus impacting liquidity.

The Aviva Investors Index Opportunities Fund aims to exploit the ensuing pricing anomalies by adopting long positions in stocks that are due to be included in the index, and short positions in stocks that are being excluded.

Iyad Farah, Director of Quant Solutions at Aviva Investors, said: “Index tracking funds have taken an ever greater share of the market over the past 20 years as investors seek low cost opportunities to gain equity market exposure. However, this rapid growth in passive investment has also created greater anomalies in the marketplace.

“Not only do passive investors by their nature allocate capital in proportion to the market capitalisation of existing companies - suggesting an inefficient allocation of capital - but the rebalancing of indices itself also creates inefficiencies prone to arbitrage. We believe these inefficiencies can create a consistent source of alpha for the clients of active stock pickers with passive experience like us.”

Established on 23 April 2010, the fund aims to generate absolute returns of 1 month Euribor plus 5% per annum. With anticipated volatility of less than 7.5% with an average of 5%, its long and short portfolios are constructed to be market neutral and avoid any currency or regional bias

Iyad Farah added: “This is an exciting new launch for Aviva Investors. The team leverages both active and passive fund management skills, having been through many economic and market cycles and thus observed first hand the activity this Fund seeks to exploit. To our knowledge, the Aviva Investors Index Opportunities Fund is currently the only open-for-business strategy arbitraging index anomalies in the global asset management space. We are pleased to be opening it up to external clients, who we believe can benefit from its high alpha and diversification characteristics.”