Strategies

 Theory ◦ Portfolio Management ◦ Risk Management  Market neutral ◦ Long short ◦ beta ◦ Alpha investors ◦ Smart beta  Different way to order your market, alternative weightings ◦ Arbitrage  Market making/liquidity provider  Models (oil vs oil)  M&A  Convertible bonds 2

65% M. Eriksen, 35% B. Stinson SR = 0.42  Diversification increases the Sharpe Ratio (SR)  Improved SR  Improved M 2 ! 3 100% M. Eriksen SR = 0.3 with r f = 1%

4

5

6

7

 correlations 8

9 Strategy (long-term asset allocation) Tactic (short-term asset allocation due to market timing) Stock Picking Contribution to Performance 70 – 90% 5 – 25% 1 - 5%

10

 What is the influence of your positions on your portfolio  Correlation ◦ σ P 2 = w A 2 * σ A 2 + w B 2 * σ B w A w B * σ AB ◦ ρ AB = σ AB / (σ A * σ B ) 11

 Hedge the risk you do not want ◦ Make the correlation go away 12

 Value investing: don’t pair them but look at company values (over/undervalued)  Paired trading: buying and selling two related stocks to limit market risk.  Goal: ◦ Long increase more during bull ◦ Short decrease more during bear ◦ Minimize market exposure 13

 Market neutral: 4,6%  Long/Short: 9,29% 14

 Benefit from price differences between related items  Risk Arbitrage ◦ looks a lot like normal investing ◦ M&A ◦ Liquidation ◦ Convertible bonds 15

 Mortgage: ◦ 5%-8,7%  Swap Spread: ◦ 3,7%-6.8%  Risk Arbitrage ◦ 4,03%  Convertible Arbitrage ◦ 6,68%  M&A arbitrage: ◦ 10,64% 16

 Highest average return of all hedge funds  10,42% 17

 Distrissed debt  Return:  9,44% 18

 "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." Warren Buffet  berkshire hathaway (buffet): 22% compound yearly in 40 years  S&P 500: 10% ( )  AEX: 7% last thirty years, 10.7% if reinvested 19

 Return  -5,18%  Risk of unlimited downside 20

21