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Barclays Capital launches FX Volatility Indices

LONDON – Barclays Capital, the investment banking division of Barclays Bank PLC, today announces another market first with the launch of a family of FX Volatility Indices.  These investable indices allow investors with different objectives to exploit opportunities in FX volatility, potentially underpinning attractive alpha and diversification strategies, and creating opportunities for outperformance in turbulent markets.

Volatility as an investable asset class has gained significant momentum in recent years and has been a particular point of focus in the light of the recent turbulence in the financial markets.  The liquidity and depth of the FX markets has created a corresponding demand for FX volatility strategies.

The Barclays FX Volatility Index™ family consists of three indices, ‘BetaVol’, ‘Smart BetaVol’ (or ‘sBetaVol’) and ‘AlphaVol’.  Each has a different underlying systematic strategy designed to suit different investor objectives and consists of a portfolio of long and short volatility positions.  The indices’ composition is rebalanced each month to adjust to changing market conditions.

There are two primary reasons for considering investing in FX volatility: the first is extreme event hedging.  Equity investors often look for assets that outperform when stock markets suffer from sudden drops; BetaVol Index demonstrates historically negative correlation with equities and other asset classes during calmer markets and especially at times of crises.

The second relates to portfolio diversification.  Low correlation with other asset classes and alpha opportunities tend to enhance the Efficient Frontier of a hypothetical portfolio.  Equally important for investors moving into a new asset class, particularly one that potentially outperforms in turbulent markets, are liquidity and transparency, which these indices provide.

Commenting on these new indices, Philippos Kassimatis, Co-Head of FX Structuring at Barclays Capital, said:

“We believe that the Barclays FX Volatility Indices™ are the first integrated tools that provide investors with a liquid, transparent and investable means of efficiently tapping the volatility of the world’s most liquid financial market.  The increase of correlation across asset classes in recent months has made it difficult for investors to find negatively correlated assets, particularly at times of crisis – we believe that these indices provide an attractive solution.”

Andrew Kaufmann, Co-Head of FX Structuring at Barclays Capital, added:

“As the focus to date on volatility has been in the equity markets, we believe that there will be considerable demand for this family of indices.  Following the success of the Intelligent Carry Index and the European and Global Borrowing Units, these indices represent the latest step in our development of leading edge solutions in global FX.”

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