San Francisco–based Benjamin Bowler heads a five-member group at Bank of America Merrill Lynch that returns to third place after a year as runner-up. The researchers can boast “important, cutting-edge work” on the Chicago Board Options Exchange Market Volatility Index, according to one investor. “They aren’t as predictable in their volatility strategies,” the backer adds. “They are more subjective and opinionated, and more interesting, than their counterparts.” As part of the analysts’ coverage of the subject last year, they were able to demonstrate that volatility can be forecast more readily than the performance of such developed asset classes as equities, bonds and foreign exchange can be projected, Bowler asserts. Their findings are based on a model they developed that factors in volatility momentum, volatility term structure and the volatility of volatility. More recently, the group has been advising investors that “equity volatility has notably lagged the risk of other asset classes,” the team leader says, “a very important observation in market timing and strategy development.” Since May, when the Federal Reserve indicated it might begin to trim the pace of its bond-purchasing scheme this year, “we are again seeing a divergence between the risk priced into credit, rates and foreign exchange markets versus that priced into equities,” he explains. “With equity lagging, it is likely a good time to buy equity volatility. The key is buying it smartly, however, to minimize holding costs.” — Paul Sweeney |
The 2013 All-America Research Team: Equity-Linked Strategies, No. 3: Benjamin Bowler & Team