Page 217 - A Canuck's Guide to Financial Literacy 2020

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managers rely heavily on global macro strategies when managing their
portfolios.
▪ Long & Short

This is one of the most common used strategies and would involve establishing
a long and short position in equities while utilizing derivative securities. Funds
will tend to use fundamental and quantitative techniques when making
investment decision. Typically, a fund will seek to take a long position in
undervalued securities and short overvalued securities. Their investments tend
to be publicly traded companies with a long-biased outlook.

▪ Market Neutral

Market neutral funds aim to generate above market returns with lower risk.
They’d typically hedge their bullish stock picks through the usage of options and
short their bearish positions. The goal of market neutral funds are to keep low
net exposure in comparison to the overall market.
▪ Merger Arbitrage

Merger arbitrage funds aim to profit from the merger of two or more publicly
traded companies. They aim to take advantage of price discrepancies that might
occur before and after the merger. Typically, the company that is getting
acquired, their stock price rises and the stock price of the acquiring company,
falls.

▪ Convertible Arbitrage
Convertible arbitrage aims to take a long position in a company’s convertible
securities while at the same time, taking a short position in the
company’s common shares. These strategies aim to exploit price inefficiencies
between the convertible security and common shares.

▪ Capital Structure Arbitrage

Capital structure arbitrage seeks to exploit price inefficiencies between the
various security classes issued from the same company. Mispricing
opportunities often happen between equity and debt issued securities.

▪ Fixed Income Arbitrage
Fixed income strategies aim to exploit inefficiencies in fixed income securities.
Typical strategies would include swap-spread arbitrage, yield curve arbitrage
and capital structure arbitrage.
▪ Event Driven Arbitrage

Event driven strategies seek to exploit pricing opportunities that may arise due
to specific corporate events. This includes mergers, takeovers, reorganizations,
restructuring, asset sales, spin-offs, bankruptcies and other events that may
cause stock price inefficiencies.