Investec Bank is looking to offer more equity investment products this year which play correlation, such as single stocks versus stock baskets or indices. The firm will build out its correlation trading effort to hedge the structures. Peter Van Kleef, head of equity derivatives in London, said, "This is in vogue at the moment." He noted products such as Altiplanos, which pay out providing no stock in a basket goes out of a predetermined range, will likely continue to be popular this year. With equity volatility remaining low, there is growing focus from investors in trading correlation, he added.
Improvements in correlation modeling and greater liquidity of volatility instruments such as variance swaps are making it easier for smaller players to structure exotic equity investment products, noted one official. Previous problems hedging these structures in recent years led to the sale of exotic equity books by TD Securities and CIC last year (DW, 10/24).
