Options portfolio results November 2008

[ Thursday, 4 December 2008 ]

Fidelity's options portfolio has dipped in November
Options Portfolio November return

Options Portfolio results for November 2008


Like Sylvester Stallone’s boxer character Rocky, our Options Portfolio has taken a battering in recent times, but is still on its feet and poised for a recovery.

It suffered a 6.2% fall in November, following a smaller drop the previous month. A similar situation applied to the other related products, the Options Kiwi Fund and the Capital Guaranteed Bond.

Extreme turbulence in long-term interest rates in November took its toll. US 10-year rates fell by over 100 basis points (1%) in the month, an unprecedented move and completely unexpected. It is yet another sign of the highly volatile nature of investment markets, with wild swings on an almost daily basis. For example, in one day alone in mid-November the Portfolio shed 15%. It is a credit to the competence of the team at Tyndall that the net result for the month was a mere 6% drop.

Tyndall has been actively managing the Portfolio and its many options contracts, varying both the spread (how many basis points each contract covers) and the duration. They say they have never experienced anything like this before. US rates are now at very low levels as the ‘flight to quality’ continued, but are probably at or near the bottom of their range.

In Tyndall’s view, the positive side of volatility  is that the risk premiums they are able to earn are now significantly higher. Once the volatility settles down, they expect a sustained period of high premium income to the fund. Exactly this situation occurred at the beginning of the year: a poor January was followed by six months of superb returns. 

Taking the wider picture, the Portfolio has come through the crisis better than many other investments:

-          It still achieved  a positive return for the year to 30 November, of plus 2.74% after tax.
-          In comparison, the NZX50 dropped 33% and the MSCI even more, nearly 45% in US dollars. Only the drop in our dollar relative to the US dollar, which offset some of this fall, mitigated what has been a disastrous year in general.

The Options Portfolio update for November is now available on the Adviser Centre Website
just click here.






4 December  2008

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