Laffitte Index Arbitrage launched in October 2012 is a "Market Neutral" arbitrage fund on global equities and derivatives specialized in arbitrage strategies on indices and dividends. The management team felt that the environment was so conducive to this type of strategies. Interviews with Eric Robbe, president of Laffitte Capital Management about the opportunities afforded by the dividends "Market" ...
Next-Finance: Do you consider "dividends" as a new asset class ?
Eric Robbe: Yes dividends are a new asset class, you can buy or sell dividend via derivatives (futures or options) and have exposure on dividends being exposed to the second order underlying. It is a real asset class in the sense that it is also de-correlated from other traditional assets such as equities, bonds and other money market products. The day when all asset classes are disrupted by an uncertain economic environment, the dividend is ultimately the only active asset that business leaders can manage, unlike their market price. This is a real communication tool for investors.
The day when all asset classes are disrupted by an uncertain economic environment, the dividend is ultimately the only active asset that business leaders can manage, unlike their market price. This is a real communication tool for investors.
Eric Robbe, CEO, Laffitte Capital Management
Do you use dividend futures or dividend swaps ?
We mainly use listed dividend futures. The main advantage with respect to a dividend swap is the measurement of counterparty risk.
In one part your risk is shared in a clearing in the other part the risk is concentrated on a specific counterparty. As part of our management, it is more comfortable to deal with futures or options on dividends whose technical characteristics are known to all and whose risks are clearly identified.
Can you describe the different types of dividend strategies you implement?
We described on our website the outlines of the different strategies used in our management.
The main strategy is a carrying strategy, for example, you feel that your anticipation of dividend is underestimated by the market, you are buying the future on the underlying instrument to capture the difference between the actual market price and the market price at maturity , and that , for a given index or security. With different futures contracts (securities, indices, sectors) and options on dividends, combinations are numerous. Some products are priced beyond 2020, which also offers the possibility to implement calendar arbitrages strategies.
Futures markets allow leverage to the constraints related to the structure of the fund in the UCITS framework, the commitment measure (either linear or VAR) is very strict.
The benefit from dividend strategies for a manager is based on its excellent readability both in the gains expectations offered than in risk management. It is very easy to measure the tail risk, which gives its full dimension to the robustness of the portfolio allocation in a management process based on budget risk that one gives.
Eric Robbe, CEO, Laffitte Capital Management
What is the feedback from investors that you have encountered? What is your outlook for the collection of funds?
Academic studies show that over a long period, the dividend is the essential part of the stock. At a time when investors are seeking new sources of asset pricing, and concomitantly the profiles of other asset classes do not provide the expected returns (low interest rates, the bond market at the end of cycle, stock market related to more and more volatile economic cycles with the anticipated reduction of accommodative monetary policies), investors clearly understand the issue to be placed on this asset class.
We launched Laffitte Index Arbitrage in August 2012. We were one of the first funds to offer this thematic about dividends operations as the main driver of return. Collection of funds has increased by over 50 % since the beginning of the year and we see a sharp acceleration from the past two months.
