Greenwich Associates Publishes Research On North American Equity Derivatives

Trading volumes of highly liquid flow equity derivatives surged last year in North America as hedge funds, asset managers and other institutional investors shifted strategies in response to mounting turbulence in global equity markets, according to the results of Greenwich

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Trading volumes of highly liquid flow equity derivatives surged last year in North America as hedge funds, asset managers and other institutional investors shifted strategies in response to mounting turbulence in global equity markets, according to the results of Greenwich Associates’ 2008 North American Equity Derivatives Research Study. With investors retreating to safer and better-understood instruments in the face of historic volatility, however, the use of structured or securitized equity products fell sharply.

Over the past five years, equity derivatives have evolved into standard and in many cases essential tools for investors, including both hedge funds and cash portfolio managers. Long-only funds have used derivatives to diversify their investment strategies and many of them now use options and futures as a way to take positions on a more efficient or tax-effective basis, to leverage or hedge positions, or even to create artificial short positions. Just how commonplace have derivatives become in institutional portfolios?

Two-thirds of North American institutions targeted for Greenwich Associates research use equity derivatives as an overlay to their equity investment strategy.

60% use equity derivatives to express directional views on individual stocks, sectors, or markets; that share jumps to 83% among hedge funds.

Over 40% say they employ more complex strategies that include equity derivatives as a core component.

With the spike in volatility from last summer though the second quarter of 2008 the research period for the 2008 study institutions ratcheted up their use of flow derivatives products. Commission payments by North American institutional investors on equity options trades soared some 50% during the period. In a shift from prior years, however, the proportion of institutions using certain flow products was flat or actually declined year-to-year, even as the volume of trading business was increasing.

For more details please visit www.greenwich.com

D.C.

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