AIM UK

[ls7550]

Extending the Ladder concept to enhance volatility capture benefits.

Using the Index Ladder we can identify a suitable amount of cash and stock exposure to carry at any one time.

If we split that indicated stock and cash levels across a range of sectors/styles that have low correlations, then we can individually Ladder each such sector/style and increase the cash reserves for each individual sector/style Ladder in reflection of the different drumbeats of price motions.

Scaling each sector/style Ladders cash allocation three times will result in the total funds allocated to each sector/style being around twice that of the conventional case. With twice the amount allocated to each sector/style Ladder we might reasonably anticipate encountering twice the volatility capture gains.

We increase the risk of burning all cash if all sectors/styles call upon cash reserves at the same time. Providing however that when one sector/style is down, others remain level (or up) then this risk is largely mitigated.

A further benefit of applying Ladder at the sector/style level is that generally individual sectors/styles tend to be more volatile than the Index.