Macro factor
Looking at the macro picture, while Jain tries to keep an eye on factors that would cause a rise in volatility, he maintains he would welcome a stock market crash because that is when “entropy really tends to stand out, as in 2008”.
“We do think stocks will remain volatile for the time being. We do not see a big move in either way but we do expect there to be choppiness for a while in the stock market.”
However, he does emphasise that he tries hard every day not to take a view on where the stock markets are going.
“It is very tempting but, because of what I do and how we work, it is important for me to stay neutral.”
Jain likens the market he deals in to car insurance, where the customer does not want to make money on a policy, while the insurance company most often tends to.
“We are basically options sellers. We write options and tend to sell whatever the market wants, such as car policies, and then we cover our risk on the back end. The premium we receive, minus the cost we pay for hedging, is the money we make.”
The diversity of the sectors across the world in the underlying portfolio is an obvious strength, he says.
“What is going to affect crude oil is not going to affect coffee. Brazil is going to affect coffee, while the yen is going to be affected by what happens in Japan.
“As a result, I am dramatically diversified all across the world, because they are completely different sectors. You could imagine what would affect cotton would not affect gold, and what affects natural gas would not even move silver.”
The view from here
The outlook for the rest of the year augers well, he says. “The volatility was high last year and, because of the way the markets are run, it tends to come in cycles. In the sectors we are dealing with, we definitely expect this year to be much better than last.”
He believes all the sectors will do well, apart from stock indices, which he is staying away from because of the choppiness in the market.
“People tend to have very short memories, for some reason.
Everyone is, again, long on properties, long on bonds, long on shares, and they all seem to have forgotten what happened in 2008 – and ignorance will not be bliss anymore.”
