< The 2015 All-America Research Team
Benjamin Bowler, Nitin Saksena & team
Bank of America Merrill Lynch
First-place appearances: 9
Total appearances: 31
Team debut: 1993
Repeating in second place is the Bank of America Merrill Lynch team under the direction of San Francisco–based Benjamin Bowler, 42, and 33-year-old Nitin Saksena, who works out of New York. “Typically, they’re looking at stuff other people don’t pay attention to,” remarks one portfolio manager. “They do the most rigorous work on volatility across asset classes — equities, credit spreads, rates, you name it — so they’re able to warn you if things will hit the fan.” On that subject the strategists correctly anticipated that volatility would rise this year from the depths established in July 2014, when the Chicago Board Options Exchange Volatility Index, or VIX, reached a low of 10.32. It stormed to a high of 40.74 in late August 2015 but quickly settled to stand at 22.28 in mid-September. The central bank’s role in containing volatility — the main driver of the post-2008 “volatility crush,” Bowler says — remains largely intact, they contend, barring a loss of credibility. Even so, “bank deleveraging, the influence of high-frequency capital [flows] and the growth of listed volatility trading” will continue to combine to produce volatility shocks that will be contained yet pronounced, he adds. This ‘storm in a teacup’ type of event has significant implications for strategies involving core equity derivatives, the researchers believe, including call overwriting. To build exposure to the volatility risk premium, they recommend that investors sell call options on top of long S&P 500 positions, a gambit which should continue to outperform through the rest of 2015. They also tout “the benefits of owning VIX calls funded by selling S&P 500 puts to take advantage of the strengthening outperformance of volatility during market sell-offs,” Bowler adds. “It can be structured to provide a low-cost hedge or alpha strategy.” Finally, BofA Merrill’s squad forecasts that “owning European-realized volatility funded by selling U.S. volatility will outperform,” the co-captain says.