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Alternative Market Briefing

ConvergeEx: Investors underestimate volatility potential

Friday, August 01, 2014

Bailey McCann, Opalesque New York:

Investment professionals say that investors are too complacent about the potential rise in volatility that could hit financial markets in the coming months according to new research from ConvergeEx Group. 71% of survey respondents expect volatility to climb from historically low levels by the end of September 2014, and even more (81%) expect a rise by the end of December 2014.

A majority of those surveyed identified U.S. Federal Reserve policy as the most likely driver of a near-term spike in volatility. Events in the Middle East came in second at 16% and Ukraine came in third at 14%. In line with those observations, respondents predict the VIX will be at 13.3 by the end of September 2014, and at 14.5 by the end of December 2014.

"We also have a clear picture of how record low volatility has hurt the sell side," says Tony Saliba, ConvergeEx Group executive managing director. "Two thirds of banks and brokers say the current environment has been bad or very bad for business."

An uptick in market volatility could actually be a blessing in disguise for some investors - particularly those with hedge fund allocations that have lagged behind in the low volatility environment. Still, investors are often unwilling to ride out volatility to reap those returns. Others who are not defensively positioned, may find volatility tough to take if they've been over reliant on the long only rally in recent quarters.

Survey respondent......................

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