Lesson 4 of 8 · 14 min
Relative value and opportunistic strategies
Relative value funds bet that a temporary price gap between related securities will close, while opportunistic funds (global macro and managed futures) take directional, top-down positions across whole markets.
In short
- Relative value strategies profit from unusual short-term pricing gaps between related securities, expecting them to close; they may span asset classes.
- Convertible bond arbitrage: long the convertible, short the issuer's shares in proportion to the embedded option's delta; bankruptcy risk can be hedged with puts or CDS.
- Fixed-income relative value: trades between issuers, between corporate and government debt, along one issuer's curve or capital structure, and in ABS, MBS and high yield.
- Multi-strategy: moves capital quickly between strategies, often run by separate pods of managers.
- Global macro: top-down views on economies, trading rates, equities, currencies and commodities; thrives on volatility, which central-bank smoothing reduces.
- Managed futures (CTAs): systematic trend and momentum trading in futures; strong in sustained trends and crises, hurt by choppy, mean-reverting markets.
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