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Some Strategies of Hedge Funds

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Convertible Arbitrage      Investing in convertible securities i.e. long convertible and short the common stock of the same company.

 

  

Fixed Income Arbitrage   Profits from price anomalies between related interest rate securities. e.g interest rate swap, US & non-US govt. bonds, forward yield curve arbitrage, mortgage backed securities arbitrage.

 

 

Equity Market Neutral     To exploit equity market inefficiencies, simultaneously long and short matched securities portfolios.

 

 

Merger Arbitrage            Simultaneously in long and short positions in both companies involved in a merger or acquisition. Also known as special situations or event driven.

 

 

Credit

 

Distressed Securities     To invest in debt, equity or other instruments of companies in financial distress and general bankruptcy.

 

 

High Yield                     Investment in low grade fixed income securities of companies that show significant upside potential. Sometimes managers short bonds where they believe there are high credit risks as compared to market price.

 

 

Emerging Market Debt    Fixed income investing in emerging markets. Mostly long- biased with strategic short positions, sovereign and corporate.

 

 

Regulation D                  Investment in micro and small capitalisation companies that are raising money in private capital markets.

 

Macro

 

Global Macro                 Long and short positions in any of the world's major capital or derivative markets. Positions are views on overall market direction as influenced by major economic trends or events. Portfolio includes stocks, bonds, currencies, commodities, cash or derivatives. Overall investments are globally both in developed and emerging markets.

 

 

Managed Futures           Investment in listed financial and commodity futures markets and currency markets around the world. Managers are usually referred to as CTAs.

 

 

Equity Long/Short

 

 

Equity Hedge                 Equity oriented investing on both the long and short sides of the market. Objective is not to be market neutral.

 

 

Dedicated Short Bias     To maintain net short as opposed to pure short exposure. Short positions are mainly taken in equities and derivatives.

 

 

Other Terms                

 

 

Fund of Funds               Invests in other funds

 

 

Multi Strategy                Invests in different strategies and changes allocations according to market or economic circumstances.

Posted in Hedge Funds Terminology.


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