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The 2014 All-Europe Research Team: Equity Derivatives, No. 2: David Silvestrini & team
Davide Silvestrini guides J.P. Morgan Cazenoves crew to a repeat second-place finish. His London-based quartet is hailed as good all around and especially strong on dividend swaps, in the words of one booster. The main risk for 2014, the strategists believe, is U.S. Federal Reserve Board policy and potential miscommunication related to it. However, the relatively muted reaction of European equity volatilities to the Feds May announcement of potential tapering indicated a lack of panic buying of European equity protection by investors, Silvestrini says. Our base case is that the credibility of the European Central Banks backstop will remain unchallenged in 2014, he adds, and that the relatively quiet period in the euro crisis will persist. Looking ahead, some classic carry trades are somewhat less attractive than before, the team leader notes, because the risk premiums of many equity derivatives have compressed over the past year although the squad does find pockets of value in specific positive carry trades, such as to FTSE dividends. The researchers also are focusing on funding costs for equity trades and plan to keep advising clients on how to achieve the most efficient exposure via delta-one equity products, Silvestrini advises. With delta-one derivatives an investor has one-to-one exposure to an underlying asset without owning it; examples include equity swaps, exchange-traded funds, forwards and futures.