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Bailey McCann, Opalesque New York:

After years of calm markets, 2020 turned out to be the year tail risk funds were waiting for. Tail risk and other volatility strategies ended 2020 up significantly after 8 years of underperforming.

Los Angeles-based Logica Capital Advisers was one of them. According to an investor communication reviewed by Opalesque, the Logica Absolute Return ended 2020 up +14.9% and Logica Tail Risk was up +15.1%. Both strategies kept up the momentum in January, Logica Absolute Return was up +0.54% and Logica Tail Risk returned +0.48% on volatility driven by heavy retail trading in the equities market.

In the letter, Logica notes that markets have been driven by "unprecedented factor volatility" - an ideal environment for Logica's approach. The fund has deployed new modules designed to capture moves as a result of day traders and other macro factors influencing equities. Alongside the new modules, strategies were refined in 2020 to take advantage of changes in the market regime. "The increased diversification of return sources (or more broadly, factor exposures) both lowers volatility and raises returns - a win-win we are excited about," the letter said.

Logica expects that volatility will remain one of the "one of the main games in town" throughout the year.

The letter notes several parallels between current investor views on the equity market and those held right before the dot com bubble burst. Sm......................

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