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From the Opalesque team: At a time when all strategies are becoming less profitable, Geneva-based firm Dominicé & Co has managed to return 16.6% (to 30th August) so far this year with its flagship volatility arbitrage hedge fund, Cassiopée, reported Swiss paper Le Temps yesterday.

Jean-Evrard Dominicé, associate at Dominicé & Co, told Le Temps that the fund’s performance was highly decolorated as the S&P500 lost 12% during the same period. He further commented that in the volatility field, markets are showing a structural aberration. Investors pay very high premium for short term volatility (4 to 6 weeks) by buying or selling calls or puts, either for speculation or for portfolio protection. This market myopia is leading to high premium. “We seek to collect those premiums, on a hedged basis, by having on the one hand exposure to volatility products, and on the other, exposure to stock markets. The two positions neutralise each other, and the performance comes from the surplus in volatility premium paid by the market.”

When asked why alternative investments were becoming less profitable in general, Mr. Dominicé said that the real problem was the sheer size of the hedge fund industry; a lot of firms are using the same strategies at the same time. Funds of hedge funds are trapped into a kind of psychological rigidity which leads them to allocate their capital to the same companies – the biggest ones – instead of going for funds......................

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