Chapter 19-20 Alternative Investments Flashcards
Alternative Investments Flashcards CFAI
Activist short selling
A hedge fund strategy in which the manager takes a short position in a given security and then publicly presents his/her research backing the short thesis.
Back-fill bias
The distortion in index or peer group data which results when returns are reported to a database only after they are known to be good returns.
Cross-sectional momentum
A managed futures trend following strategy implemented with a cross-section of assets (within an asset class) by going long those that are rising in price the most and by shorting those that are falling the most. This approach generally results in holding a net zero (market-neutral) position and works well when a market’s out- or underperformance is a reliable[predictor of its future performance
Dedicated short-selling
A hedge fund strategy in which the manager takes short-only positions in equities deemed to be expensively priced versus their deteriorating fundamental situations. Short exposures may vary only in terms of portfolio sizing by, at times, holding higher levels of cash.
Fulcrum securities
Partially-in-the-money claims (not expected to be repaid in full) whose holders end up owning the reorganized company in a corporate reorganization situation.
Fund-of-funds
A fund of hedge funds in which the fund-of-funds manager allocates capital to separate, underlying hedge funds (e.g., single manager and/or multi-manager funds) that themselves run a range of different strategies.
Hard-catalyst event-driven approach
An event-driven approach in which investments are made in reaction to an already announced corporate event (mergers and acquisitions, bankruptcies, share issuances, buybacks, capital restructurings, re-organizations, accounting changes) in which security prices related to the event have yet to fully converge.
Life settlement
The sale of a life insurance contract to a third party. The valuation of a life settlement typically requires detailed biometric analysis of the individual policyholder and an understanding of actuarial analysis.
Multi-class trading
An equity market-neutral strategy that capitalizes on misalignment in prices and involves buying and selling different classes of shares of the same company, such as voting and non-voting shares.
Multi-manager fund
Can be of two types, one is a multi-strategy fund in which teams of portfolio managers trade and invest in multiple different strategies within the same fund; the second type is fund of hedge funds (or fund-of-funds) in which the manager allocates capital to separate, underlying hedge funds that themselves run a range of different strategies.
Multi-strategy fund
A fund in which teams of portfolio managers trade and invest in multiple different strategies within the same fund.
Pairs trading
An equity market-neutral strategy that capitalizes on the misalignment in prices of pairs of similar under- and overvalued equities. The expectation is the differential valuations or trading relationships will revert to their long-term mean values or their fundamentally-correct trading relationships, with the long position rising and the short position declining in value
Quantitative market-neutral
An approach to building market-neutral portfolios in which large numbers of securities are traded and positions are adjusted on a daily or even an hourly basis using algorithm-based models.
Relative value volatility arbitrage
A volatility trading strategy that aims to source and buy cheap volatility and sell more expensive volatility while netting out the time decay aspects normally associated with options portfolios.
Short-biased
A hedge fund strategy in which the manager uses a less extreme version of dedicated short-selling. It involves searching for opportunities to sell expensively priced equities, but short exposure may be balanced with some modest value-oriented, or index-oriented, long exposure.
Single-manager fund
A fund in which one portfolio manager or team of portfolio managers invests in one strategy or style.
Soft-catalyst event-driven approach
An event-driven approach in which investments are made proactively in anticipation of a corporate event (mergers and acquisitions, bankruptcies, share issuances, buybacks, capital restructurings, re-organizations, accounting changes) that has yet to occur.
Stub trading
An equity market-neutral strategy that capitalizes on misalignment in prices and entails buying and selling stock of a parent company and its subsidiaries, typically weighted by the percentage ownership of the parent company in the subsidiaries.
Survivorship bias
Bias that arises in a data series when managers with poor track records exit the business and are dropped from the database whereas managers with good records remain; when a data series of a given date reflects only entities that have survived to that date.
Time-series momentum
A managed futures trend following strategy in which managers go long assets that are rising in price and go short assets that are falling in price. The manager trades on an absolute basis, so be net long or net short depending on the current price trend of an asset. This approach works best when an asset’s own past returns are a good predictor of its future returns.
Unsmoothing
An adjustment to the reported return series if serial correlation is detected. Various approaches are available to unsmooth a return series.
