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Derivatives

U.S. Manager Dives Into Inflation Mart

Ashton Analytics, an investment advisory firm in Morristown, N.J., is launching four inflation-focused funds that will each use over-the-counter derivatives.

Ashton Analytics, an investment advisory firm in Morristown, N.J., is launching four inflation-focused funds that will each use over-the-counter derivatives. All four funds will launch with about USD25 million under management in the third quarter, said company founder Michael Ashton.

Ashton said a classic example of an OTC trade his firm might put on is an arbitrage between the inflation that's implied in Consumer Price Index swaps and the inflation implied in the difference between nominal treasuries and TIPS, which are inflation-linked treasuries. He said the firm could do an asset swap on the TIPS versus an asset swap on an equivalent-maturity nominal treasury. "They are fairly simple trades with two inflation-linked legs and nominal legs," he said, adding, "at maturity, it's not a pure arbitrage, but it's pretty darn close."

Ashton described the first of the four funds as a leveraged, relative value fund focused on inflation-linked bonds and derivatives globally. The second is an inflation-linked money market fund which uses OTC products to generate inflation exposure, he said. The third is an inflation-linked bond fund that operates like a standard TIPS fund, but it uses derivatives as a cheap alternative to index securities. And the fourth is benchmarked to the Goldman Sachs Commodity Index and uses futures and other products related to the GSCI sub-indices, he said.

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