Mr. Gibson: I've been in the investment management business for over 13 years and first started developing my core area of expertise as an options trader on the floor of the Pacific Exchange in San Francisco. After leaving the floor, I spent over eight years with BB&T, most recently as the Director of Alternative Investments for BB&T Asset Management, where I oversaw over 600 million in commitments to various strategies related to my core expertise. The genesis for Gibson Volatility Management was a belief that there was a better way to approach growth investing than simply relying on a rising equity market, which is the approach taken by most advisers.
My focus is managing a strategy that has more asymmetrical return properties, performing well in a rising equity environment while offering greater stability in falling equity markets. It's not to say that the strategy that I manage will never lose money, but I expect it to perform better in times of stress, to have lower correlations to equities and to have lower overall volatility relative to a traditional growth portfolio.
TWST: Tell us about the low-volatility growth portfolios that you specialize in.
Mr. Gibson: The portfolio is a combination of three parts. The first part is traditional equity exposure, which a lot of people in the business refer to as beta. The objective for that portion of the portfolio is to capture movements in the equity markets in all areas of equity beta, including U.S. large-cap, mid-cap and small-cap, and also International Developed equities and Emerging Markets equity. This portion of the portfolio will typically represent anywhere from 25% to 75% of the total assets.
While this portion of the portfolio will serve well in a rising equity market, it's important to have other strategies in the portfolio that aren't dependent on a rising equity market and that can help smooth portfolio returns. This is where the second part of the portfolio, low-correlation strategies, can add tremendous value. These are strategies that have historically had independent return characteristics that are not dependent on a rising equity market and that are often very specialized and unique. Some examples of those strategies include commodities, gold, convertible arbitrage, merger arbitrage, statistical arbitrage, distressed, trend following, equity market neutral and other strategies where I see attractive opportunities and that I think could add significant diversification benefits. This portion of the portfolio will typically range from 25% to 75%, depending on the market environment.
In terms of the core composition of the underlying portfolio, those are the two key parts. But then I bring in a third part, which is what I refer to as an option overlay, where I use my options expertise to implement strategies to enhance cash flow or to reduce risk in times of stress. The option overlay may be executed on the majority of the underlying holdings in the portfolio, including the equity beta positions and portions of the low correlation allocation.
I think that the combination of these three parts of the portfolio (equity beta, low-correlation strategies and the option overlay) in a single strategy is very unique. There are some managers that may have expertise in one or two of those pieces, but I think one of the most unique things that I offer my clients is expertise in all three of those areas. If executed properly, this unique combination offered in one growth strategy should create a better opportunity for asymmetric returns that are not dependent on a rising equity market for performance.
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