Levitas ARVIX Fund is up 4% this month but says their model had expected a return closer to 7-10%. The difference is due to VIX trading significantly below single stock implied volatility.
Single stock implied vol (as measured by the top S&P 100 large cap names) is trading at Aug ‘15 highs yet VIX is trading some 15 point lower. This was the last major broad-based multi-asset sell-off. Implied correlation is currently tracking around 35% and contrasts to a measure more like 75% in a true risk-off macro unwind. Credit Suisse, in a note to investors, believes this is due to hedging single stock earnings rather than protecting against a more macro deteriorating backdrop. Assuming single stock vol holds and correlation moved closer to this measure of 75, VIX would be around 8 points higher.
Going forward this means that if we get into a more broad risk-off environment, VIX will move up and the ARVIX strategy is looking like good value.
Another fund trading volatility, Global Sigma AGSF, is up 50bps this month as of October 19, and up 12.6 Year-To Date. This compares against the backdrop of S&P slipping into negative territory for the year.
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