Liontamer sees an end to gloom
By Rob Stock - Sunday Star Times | Sunday, 10 May 2009

Lowering of ‘Fear Index’ indicator of better times ahead

Home-grown capital protected funds provider Liontamer says a lowering of the US ‘Fear Index’ is a leading indicator of better times ahead.

Sharemarkets the world over have taken a hammering in the past six months, but Liontamer, which closely monitors the pricing of the options it buys to back its capital-protected investment funds, says calm has been returning to the markets.

Liontamer’s Janine Starks said the Chicago Board Options Exchange Volatility Index (VIX), popularly known as the Fear Index as it tracks market expectations of rises and falls in the S&P 500, though still at an historically level, has begun to head back to more normal territory.

Starks said that means Liontamer, back under local control after a deal struck with Belgium investment bank KBC in January, was once again planning fund launches. “Volatility has been up as high as three to four times what we have ever experienced, just off the scale, which has meant we couldn’t put together funds,” Starks said.

“The cost of capital protection would have been too high”, she said. But now that markets are calmer, pricing of options had improved. The level of VIX, which is expressed as a percentage, corresponds roughly to market expectations of the movement of the S&P 500 in the next 30 days, so a VIX level of 37% (the level on April 22) would equate to a movement of up to 10.6% in the next 30 days, according to Liontamer.

While that’s extreme volatility, said Starks, it’s much better than the 80% index level in October last year, or the 50% level in March. On Wednesday, the level of VIX was 33%. “It is a leading indicator that the markets are calming,” Starks said.
Indeed some fund managers and investment banks say they are seeing the green shoots of sharemarket recovery, with the likes of Barclays and Goldman Sachs announcing they believe the worst is behind for sharemarkets. “There are a lot of big names among the green-shooters,” said Starks, but Liontamer remained cautious that there could well be more unpleasant surprises ahead.

Liontamer is finalising details of a new fund, an Australian share fund where returns are linked to the performance of the ASX 200 Index with two kinds of units: the capital-protected units Liontamer is known for, and unprotected units.

The cost of capital protection on the first class of units would be that for every $1 the Index rose, investors would get just 90 cents gain. The unprotected units would get investors $1.50 for every $1 index gain.