THE QUANTITAS CAPITAL APPROACH

Transcription

1 THE QUANTITAS CAPITAL APPROACH TO PORTFOLIO MANAGEMENT QUANTITASCAPITAL.COM LARIMER STREET DENVER, CO 80202

2 WHO WE ARE

3 QUANTITAS CAPITAL INC. Denver based Registered Investment Advisor firm with operations in Miami and New York Founded in 2011 by Matthew Carr and Steven Melanson Principals have over 20 combined years of financial market experience The firm specializes in special situation equities, foreign exchange, and portfolio risk management Quantitas employs an event-driven, value-oriented investment style The Firm seeks to identify idiosyncratic, catalyst-driven opportunities

4 VOLATILITY DEFINED Volatility A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns for that same security or market index. σ = standard deviation of the instruments yearly logarithmic returns T = time horizon σt = generalized volatility for time horizon T in years σsd = standard deviation of daily logarithmic returns P = 1/252 since there are 252 trading days in a given year

5 IMPLIED VOLATILITY DEFINED Implied Volatility A variable in option pricing formulas showing the extent to which the return of the underlying asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used. p = option price xi = volatility yi = option s theoretical value at volatility xi vi = option s Vega at theoretical value yi epsilon = degree of accuracy

6 GENERAL APPLICATIONS OF VOLATILITY ANALYSIS Modern Portfolio Theory: RISK = VOLATILITY

7 QCI APPLICATION OF VOLATILITY ANALYSIS Carr s Rule Frequency of occurrence x severity of outcome = A Constant When Portfolio Managers are trying to manage day to day returns with very little vol (minimal downside risk), they are essentially attempting to eliminate the frequency of problems. This is standard practice on many desks utilizing VAR models We view volatility as opportunity and risk as permanent capital impairment We view VAR models and realized vol. projections as Driving the car while looking in the rear-view mirror

8 APPLICATION: CASE STUDIES

9 VOLATILITY ACROSS THE CAPITAL STRUCTURE

10 CAPITAL STRUTURE ARBITRAGE IN ACTION

11 ENTER EL PASO Long the Senior Secured Bond Short the Convertible Bond The rational: If El Paso went bankrupt: the convergence of the convertible and senior secured bond would net out positively If a Chevron/Exxon acquired El Paso The long bond, which had a very long duration, would become Chevron/Exxon credit quality, so the bond had a large potential upside and could go from 75 cents to roughly 125 cents in our view The convertibles short position was callable and had minimal upside

12 FX: WHEN GOOD PEGS GO BAD

13 SWISS FRANC PEG TIMELINE SWISS CURRENCY PEG WHEN GOOD PEGS GO BAD 2011 Swiss Bank initiated peg to the Euro with a 1.20 cap 2013 The Swiss Bank spends tens of billions to maintain the peg January 2015 Swiss Bank relinquished the currently peg leading to a 40% move in the currency valuation 2012 European interbank risk subsides and credit spreads begin to tighten 2014 After nearly three years the market begins to price the likelihood of a large move in the Swiss/Euro pair as increasingly remote

14 SWISS FRANC/EURO ENDS ABRUPTLY

15 SWISS FRANC/EURO

16 GERMAN BUNDS: NEGATIVE YIELDS & 10 SIGMA EVENTS

17 I M LOOKING TO MAKE A LOAN, I LL PAY 20 BPS. 53% of all global government bonds currently yield 1% or less $5.3 trillion of all global government bonds currently have negative yields, of which 60% are European

18 ZERO LOWER BOUND DEBT DYNAMICS The recent 10 Year German bund move from 0.07% to 0.72% exhibited 6 sigma, 10 sigma, and 13 sigma moves in the span of a 17 trading day time period

19 RETURN FREE RISK

20 QUESTIONS? CONTACT DENVER MIAMI NEW YORK

21 This presentation is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product or as an offer of solicitation with respect to the purchase or sale of any investment. This article should not be considered research nor is the article intended to provide a sufficient basis on which to make an investment decision. The article contains opinions of the author but not necessarily those of Quantitas Capital Inc. The author s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy.