Market Neutral

We define the market neutral category to include all investments designed to have a low correlation with other portfolio holdings or with the overall market. There are several examples of investments that we include in certain of our portfolios; these are generally mutual funds that are geared towards institutional investors. The following is a brief description of a few of the strategies that we often use.


Merger Arbitrage

Merger Arbitrage is an investment approach designed to profit from the successful completion of corporate reorganizations. The most common arbitrage activity involves purchasing the shares of an announced acquisition target company. The shares are purchased at a discount to their expected value upon completion of the acquisition. Merger arbitrage will utilize hedging strategies that are designed to minimize market exposure and volatility. These strategies include short selling, as well as the purchase and sale of options. The goal is to provide investors with consistent, positive returns that are not correlated to the equity markets.

Long/Short Portfolios

Long/Short Portfolios have a low correlation with the market as a whole and, as such, are an important diversifier in a portfolio. A long position in an individual stock will provide a positive return for an investor if the stock price increases while a short position will provide a positive return for an investor if the stock price declines. This type of portfolio will generate returns based on the manager’s ability to identify both strong companies and weak companies; it will not necessarily be impacted significantly by movements in the overall market as a whole.


Interest Rate Hedging

Interest Rate Hedging is a strategy that can provide for a hedge against rising interest rates. In a rising interest rate environment bond prices will tend to drop and investors would then lose some of their invested principal. Interest rate hedging vehicles will look to match the returns that correspond to the inverse (opposite) of the daily price movement of some bond market index (often a recently issued U.S. Treasury Bond). This can be combined with bond holdings to generate income while managing the risk of loss due to interest rate fluctuations.

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