The Markets January 22, 2008

S&P Launches Arbitrage Indexes

Standard&Poor’s has launched a family of indices designed to model common arbitrage strategies in the financial markets.
Reported by

The three indices – the S&P 500 Volatility Arbitrage Index, the S&P Currency Arbitrage Index and the S&P Long Only Merger Arbitrage Index – are the first in what will be a series of arbitrage indices launched by Standard & Poor’s in 2008, according to a press release.

According to the firm:

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  • The S&P 500 Volatility Arbitrage Index seeks to model a common strategy that takes advantage of the difference between implied volatility and realized volatility. The index consists of receiving implied variance and paying realized variance of the S&P 500. Volatility arbitrage strategies are based on the tendency for implied volatility of an asset to be higher than realized volatility.
  • The S&P Currency Arbitrage Index seeks to model a carry trade strategy based on G10 currencies. It takes a long position in currencies that have a higher interest rate than the U.S. Dollar and a short position in currencies that have a lower interest rate than the U.S. Dollar. The weight of each currency is directly proportional to its interest rate spread and inversely proportional to its volatility.
  • The S&P Long Only Merger Arbitrage Index seeks to model a risk arbitrage strategy that exploits commonly observed price changes associated with mergers. The index is comprised of long positions in a maximum of 40 large and liquid stocks that are active targets in pending merger deals. A target company is considered for inclusion if at least 25% of the compensation to be paid for the target’s shares is in cash. Deals are screened on the basis of size, liquidity, premium, and exchange listing to ensure that the underlying positions are tradable and offer upside potential if the deal does close.

For more information about Standard & Poor’s family of arbitrage indices, visit http://www.standardandpoors.com/indices and click on “strategy indices” in the left navigation tab.

Products January 22, 2008

UBS, Genworth Unveil 401(k) Plan Guaranteed Life Income Option

UBS Global Asset Management is teaming with Genworth Financial to introduce a guaranteed income for life option.
Reported by

UBS said the new offering will be available with the company’s recently announced target retirement funds and other investment options by the end of the first quarter.

According to a company announcement, the guaranteed income for life benefit will allow 401(k) participants to withdraw 5% of their highest annual locked-in portfolio value for life, even if total withdrawals ultimately exceed the value of their portfolios. In addition, the guaranteed income a participant receives can rise if the total value of their portfolio increases during strong performing markets.

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The benefit will be available for enrollment at age 50. Automatic withdrawals of 5% of the highest locked-in account value can begin at age 65. In the event a participant dies, any remaining assets pass on to their beneficiaries.

The lifetime income guarantee will be portable and preserved via an IRA rollover.

“We will now be able to provide the income security of a defined benefit plan to employees in a 401(k) plan,” said Drew Carrington, Head of the Defined Contribution and Retirement Solutions Group at UBS Global Asset Management, in the announcement. “This guaranteed income for life option is the final piece of the puzzle—we are now able to help plan sponsors provide employees assurance that they will not outlive the income they receive through retirement.”

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