The characteristics of the options encourage caution

With the crisis now almost a year and a half, the preservation of the value of the portfolio is again one of the objectives first managers. Derivatives can respond to this need. Coverage remains, in France, the main reason of their employment by institutional managers, before boosting performance (see illustration).

Studies on most markets (USA, Australia, Canada, Spain...) also show that managers are not more efficient because of the use of derivative instruments.

It was sometimes a handicap, as shown by the work on the Iberian managers, who reveal that those who use derivatives in the Spanish equity fund, European or international diversified are less well than managers who do not have recourse to these instruments...

However, this use seems to be profitable to bond, these managers are perhaps more familiar and comfortable with this type of product. The populations of users and non-users of derivatives are not very different dispersion of their risks.

As a general rule, it is rather the funds belonging to large asset managers who have the most use derivatives given notably the means indispensable for their follow-up. As those who use the selling (read next), these products are more expensive than the average because of the additional costs necessary for the management of risk.

Futures contracts

Use of derivatives may enable the Fund to better manage their liquidity constraints, namely their flows related to operations of subscription or redemption. If a Fund receives an influx of money that he wishes to invest immediately in the market for not to miss a rising movement, he can buy a contract index.

Through the latter, the managers can also expose themselves to a lower cost on an area of investment, which is particularly significant as the emerging markets, where the transaction costs are high. There is also a preference of the managers for the derivatives market, a sector, baskets of shares, more than for an individual. Futures contracts are perceived as less complex to use than the options. The first are used daily by a Manager on two to four for the latter, according to the survey conducted by TNS Sofres in spring 2005 on behalf of Euronext-Liffe to 120 managers on the French actions.

The characteristics of the options encourage caution. These products are assets whose value decreases as one approaches maturity. Their value may quickly tend to zero. Managers must also assess the appropriate time to buy them not too expensive and ensure that they are not with a product in coverage of value zero. Some professionals can use the options on shares in strategies of "momentum", as we have seen in Anglo-Saxon studies. Example, they buy stock options on companies whose course has increased strongly in the past recent to bet on the continuation of this increase and enjoy. Conversely, few purchase options of selling securities that fell heavily.

This situation might be related to the fact that these options are often much more expensive than the options. The profile of the Manager (experience, academic route...) is an important factor in the decision to treat this type of instruments or not. However, according to what was found in other countries, it is the House in derivatives policy that is determinative in individual choices. Also more than eight managers in ten not using derivatives belong to management companies globally that use very little, or not at all what type of instruments.

"Stock picking".

It is rarely the case in the shops traditional French followers of the "stock picking" (choice of values on a case by case), where the historic managers rarely have a very positive image of these products or are aware of not having the necessary skills for good to follow them and manage them. "Difficulties for managers to easily communicate on these products and overcome the a priori of end customers are a brake in their use," notes the study of TNS Sofres.