Statistical arbitrageurs IKOS have added US market capability to their collection of funds, which wi...
Statistical arbitrageurs IKOS have added US market capability to their collection of funds, which will enable the existing range to more than double its investment universe and consequently its capacity.
Martin Coward, chief investment officer at IKOS, said: 'This marks the completion of a four-year project to extend our data management, forecasting, portfolio construction, risk management and execution systems to a global equity universe. By trading most of the world's liquid stocks over a near 24-hour day we will be able to leverage the efficiency of our systems and gain diversification of returns. The US is particularly important as it comprises by far the largest and most liquid market and is also the prime driver of global investment trends.'
The US market has been fertile ground for stat arb funds in recent years, Coward said. 'Our analysis has uncovered a range of repeatable effects which exceed transaction costs, broadly similar to those in the other major markets.'
IKOS's simulations suggest that the US has offered greater opportunity than Japan in the last year, particularly after accounting for its lower trading costs. 'We do not necessarily expect this outperformance to persist, but it is apparent from our models that the continued international diversification of equity participants has led to the convergence of the behaviour and opportunities across the markets. In this environment, the scale and liquidity of the US market make it potentially the most profitable.'
It was previously the case, Coward said, that other markets were less efficient than the US but this situation has changed dramatically over recent years. 'Barriers have come down and recently Japan, which has been an important market for us, has actually been operating more efficiently than the US. This is part of the rationale for the expansion of our universe.'
At present the funds contain around $240m. The inclusion of the US will be a gradual process, mirroring the group's European strategy, to ensure the risk/return characteristics of the funds are maintained.
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