Brief Descriptions of Alternative Investment Strategy Types:
Convertible Arbitrage: Buying undervalued convertible securities and selling short the underlying equity to hedge the equity risk and profit from the relative mispricing.
Discretionary Equity Trading: Investing long/short in the equity markets based on qualitative and fundamental analysis and taking into consideration market and company specific conditions.
Distressed Securities: Investing in discounted equity and debt of companies that are undergoing distressed situations such as re-organisations and bankruptcies. Capitalising on an expected turnaround of the companies.
Equity Long / Short: Investing in a core long equity portfolio and hedging by selling short equities or by using options and futures. Managers adapt their net long and net short exposure according to expected market conditions.
Equity Market Neutral: Investing in equally long and short positions in related equity securities while remaining dollar, beta and sector neutral to reduce exposure to market risk.
Event Driven Investing in opportunities created by events such as spin-offs, mergers and acquisitions. These events create price movement upon which the manager tries to capitalise.
Fixed Income Arbitrage: Exploiting pricing inefficiencies in the global fixed income markets by taking long/short positions in related fixed income securities. Example, long in a government bond and short futures of the same bond.
Global Macro: Seeking to profit from changes in global economies. Managers forecast shifts in world economies influenced by major economic trends and events. Managers employ a “top-down” global approach, and may trade equities, debt, currencies, futures, options and commodities.
Managed Futures / CTAs: Investing in currency, financial and commodity derivative markets around the world. More often than not, computer model driven.
Market Timing: Timing the market and switching between mutual funds and money market funds. Shorting mutual funds is different but some managers say they can do it.
Multi-Strategy / Multi-Advisor: Using more than one strategy or advisor to combine different trading techniques and manager skills. This allows more investment opportunities and greater risk control
Option: Selling call options and buying put options to hedge a portfolio of long positions is called split strike conversion. Capturing the spread between similar options through inefficiencies in the market is called option arbitrage.
Risk Arbitrage: Purchasing simultaneously stock in a company being acquired due to a merger or a hostile takeover and selling short stock in the company that is acquiring the other. Usually the stock of the acquired company appreciates and the stock of the acquirer depreciates in value.
Short Term: Trading long/short equity by holding positions for a short duration. Day-trading, included in this strategy, is when the manager trades long/short equity intra day. No positions are held overnight.
Statistical Arbitrage: Trading related equities long/short and using quantitative analysis of technical factors to exploit pricing inefficiencies between these securities.
Systematic Equity Trading Investing long/short in the equity markets based on trend-following or on quantitative analysis. Computer programs, also known as “black boxes”, give buy and sell signals. The manager may or may not have discretion