Aviva Investors launched an absolute return fund that will take advantage of the pricing inefficiencies created during the rebalancing of equity indices.
The Aviva Investors Index Opportunities Fund is a Ucits III vehicle that will look to exploit pricing anomalies by adopting long positions in stocks due to be included in the index, and short positions in stocks being excluded.
Lead managers Iyad Farah and Ned Kelly will invest using active stock analysis, portfolio construction, index analysis and value added execution.
The new product is part of Aviva Investors’s absolute returns range. The firm said the strategy is constructed to be uncorrelated to other asset classes, providing diversification benefits to investors looking for absolute returns.
Farah, director of quant solutions at Aviva Investors, said: “Index tracking funds have taken an ever greater share of the market over the past 20 years as investors seek low cost opportunities to gain equity market exposure. However, this rapid growth in passive investment has also created greater anomalies in the marketplace.
“Not only do passive investors by their nature allocate capital in proportion to the market capitalisation of existing companies – suggesting an inefficient allocation of capital – but the rebalancing of indices itself also creates inefficiencies prone to arbitrage. We believe these inefficiencies can create a consistent source of alpha for the clients of active stock pickers with passive experience like us.”
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