Volatility adds interesting dynamic to portfolio investments

Volatility arbitrage funds should be able to profit through cycles. Most investors say it is about trading volatility as an asset class, directional or taking a relative value approach.

Volatility arbitrage funds successfully protected investors from the sharp losses in mainstream asset classes, and also other hedge funds, through the turbulent months of 2008.

They made 3.2% in 2008, according to Newedge’s Volatility Trading index of 10 volatility funds, versus a 43% slump in global shares and a 19% fall by hedge funds, according to Hedge Fund Research.

However, volatility-based fund managers say their outperformance should not earmark them as only ‘portfolio insurance’: useful