Long Short Equity strategy (or Equity Hedge)

Is a strategy to go long (for purchase) on securities considered undervalued and

short positions (for sale) on securities considered overvalued.
Our strategy anticipates lower overvalued stocks and rising undervalued stocks,
which allows it to make money regardless of the economic climate.
Coverage (Equity Hedge)
However, even if the stock selected by our strategy is undervalued and should
outperform the market, this does not prevent it from going bearish if the entire
stock market fall; It is the market risk.
For example, the variation of a share of the S&P 500 is highly correlated with the
variation of it.
If the S&P 500 loses 20% over a week, there is a high probability that all stocks
are in the red even though some will drop only by -5%.
To remove (or limit) the market risk, our strategy will take a long position (buying)
on the selected stock and a short position (short / vendor) on the market index. It
is said that hedges against the market.
Thus, our strategy will win the difference in performance between the selected
stock and the market even if the two are bearish.

Equity Hedge
The equity hedge
equity Long/Short

strategy

is

commonly

referred

to

as long/short

In this strategy, we can either purchase stocks that they feel are undervalued
or sell short stocks they deem to be overvalued. In most cases, the portfolio or
fund will have positive exposure to the equity markets
for example, having 70% of the portfolio invested long in stocks and 30%
invested in the shorting of stocks. In this example, the net exposure to the equity
markets is 40% (70%-30%) and the portfolio would not be using
any leverage (Their gross exposure would be 100%). If we, however, increases
the long positions in the portfolio to, say, 80% while still maintaining a 30% short
position, the portfolio would have gross exposure of 110% (80%+30% = 110%),
which indicates leverage of 10%.

Market Neutral
In this strategy, we apply the same basic concepts mentioned in the previous
paragraph, but seeks to minimize the exposure to the broad market. This can be
done in two ways. If there were equal amounts of investment in both long and
short positions, the net exposure of the fund would be zero.
For example, if 50% of portfolio were invested long and 50% were invested short,
the net exposure would be 0% and the gross exposure would be 100%.
1

There is a second way to achieve market neutrality, and that is to have zero beta
exposure. In this case, we would seek to make investments in both long and short
positions so that the beta measure of the overall fund is as low as possible. In
either of the market-neutral strategies, our intention is to remove any impact of
market movements and rely solely on his or her ability to pick stocks.
Either of these long/short strategies can be used within a region, sector or
industry, or can be applied to market-cap-specific stocks.
Global Macro
Are the strategies that have the highest risk/return profiles of any hedge fund
strategy. Global macro funds invest in stocks, bonds, currencies, commodities,
options, futures, forwards and other forms of derivative securities. They tend to
place directional bets on the prices of underlying assets and they are usually
highly leveraged. Most of these funds have a global perspective and, because of
the diversity of investments and the size of the markets in which they invest,
they can grow to be quite large before being challenged by capacity issues.

Relative Value Arbitrage

This strategy is a catchall for a variety of different strategies used with a broad
array of securities. The underlying concept is that we are purchasing a security
that is expected to appreciate, while simultaneously selling short a related
security that is expected to depreciate. Related securities can be the stock and
bond of a specific company; the stocks of two different companies in the same
sector; or two bonds issued by the same company with different maturity dates
and/or coupons. In each case, there is an equilibrium value that is easy to
calculate since the securities are related but differ in some of their components.
Example: Assume that a company has two outstanding bonds: one pays 8% and
the other pays 6%. They are both first-lien claims on the company's assets and
they both expire on the same day. Since the 8% bond pays a higher coupon, it
should sell at a premium to the 6% bond. When the 6% bond is trading at par
($1,000), the 8% bond should be trading at $1,276.76, all else being equal.
However, the amount of this premium is often out of equilibrium, creating an
opportunity for a portfolio to enter into a transaction to take advantage of the
temporary price differences. Assume that the 8% bond is trading at $1,100 while
the 6% bond is trading at $1,000. To take advantage of this price discrepancy, a
hedge fund manager would buy the 8% bond and short sell the 6% bond in order
to take advantage of the temporary price differences.

Convertible Arbitrage
We are using relative value arbitrage as convertible arbitrage that is actually
taking positions in both the convertible bonds and the stocks of a particular
company. A convertible bond can be converted into a certain number of shares.

Assume a convertible bond is selling for $1,000 and is convertible into 20 shares
of company stock. This would imply a market price for the stock of $50. In a
convertible arbitrage transaction, however, we will purchase the convertible bond
and sell the stock short in anticipation of either the bond's price increasing, the
stock price decreasing, or both.

You have to keep in mind that there are two additional variables that contribute
to the price of a convertible bond other than the price of the underlying stock. For
one, the convertible bond will be impacted by movements in interest rates, just
like any other bond. Secondly, its price will also be impacted by the embedded
option to convert the bond to stock, and the embedded option is influenced by
volatility.
Therefore, even if the bond was selling for $1,000 and the stock was selling for
$50 which in this case is equilibrium we will enter into a convertible arbitrage
transaction if we feel that:
1) the implied volatility in the option portion of the bond is too low,
2) On the other hand, a reduction in interest rates will increase the price of the
bond more than it will increase the price of the stock.

Even if they are incorrect and the relative prices move in the opposite direction
because the position is immune from any company-specific news, the impact of
the movements will be small. A convertible arbitrage trader from our team, then,
has to enter into a large number of positions in order to squeeze out many small
returns that add up to an attractive risk-adjusted return for an investor.

Pairs Trading
Pairs trading has the potential to achieve profits through simple and relatively
low-risk positions. The pairs trade is market-neutral, meaning the direction of the
overall market does not affect its win or loss.
The goal is to match two trading vehicles that are highly correlated, trading one
long and the other short when the pair's price ratio diverges "x" number of
standard deviations - "x" is optimized using historical data. If the pair reverts to
its mean trend, a profit is made on one or both of the positions.

Stocks
Traders can use either fundamental or technical data to construct a pairs trading
style. Our example here is technical in nature, but some traders use a P/E ratio or
other fundamental factors to measure correlation and divergence.

The first step in designing a pairs trade is finding two stocks that are highly
correlated. Usually that means that the businesses are in the same industry or
sub-sector, but not always. For instance, index tracking stocks like the Amazon
3

AMZN (Nasdaq 100) or the APPLE AAPL (S&P 500) can offer excellent pairs
trading opportunities. Two indices that generally trade together are the S&P 500
and the Dow Jones Utilities Average. This simple price plot of the two indices
demonstrates their correlation:
For our example, we will look at two businesses that are highly correlated: GM
and Ford. Since both are American auto manufacturers, their stocks tend to move
together.

The price ratio between Ford and GM (calculated by dividing Ford's stock price by
GM's stock price). This price ratio is sometimes called "relative performance" (not
to be confused with the relative strength index, something completely different).
The potential for profit can be identified when the price ratio hits its first or
second deviation. When these profitable divergences occur it is time to take a
long position in the underperformer and a short position in the overachiever. The
revenue from the short sale can help cover the cost of the long position, making
the pairs trade inexpensive to put on. Position size of the pair should be matched
by dollar value rather than number of shares; this way a 5% move in one equals
a 5% move in the other. As with all investments, there is a risk that the trades
could move into the red, so it is important to determine optimized stop-loss
points before implementing the pairs trade.

Futures Contracts
The pairs trading strategy works not only with stocks but also with currencies,
commodities and even options. In the futures market, "mini" contracts - smallersized contracts that represent a fraction of the value of the full-size position enable smaller investors to trade in futures.
A pairs trade in the futures market might involve an arbitrage between the
futures contract and the cash position of a given index. When the futures contract
gets ahead of the cash position, we might try to profit by shorting the future and
going long in the index tracking stock, expecting them to come together at some
point. Often the moves between an index or commodity and its futures contract
are so tight that profits are left only for the fastest of traders
Using Options
We use calls and puts to hedge risks and exploit volatility (or the lack thereof). A
call is a commitment by the writer to sell shares of a stock at a given price
sometime in the future. A put is a commitment by the writer to buy shares at a
given price sometime in the future. A pairs trade in the options market might
involve writing a call for a security that is outperforming its pair (another highly
correlated security), and matching the position by writing a put for the pair (the
underperforming security). As the two underlying positions revert to their mean
again, the options become worthless allowing the trader to pocket the proceeds
from one or both of the positions.

Les prlvements sociaux sur les revenus du patrimoine des nonrsidents bientt non conformes ?
Larticle 29 de la loi de finances rectificative pour 2012 a soumis aux
prlvements sociaux (au taux global de 15,5 %) les revenus immobiliers
(revenus fonciers et plus-values immobilires) de source franaise perus par les
personnes physiques fiscalement domicilies hors de France.

Lors du dbat budgtaire pour 2014, le dput Frdric Lefebvre a attir

lattention du Gouvernement sur la procdure dinfraction n 2013-4168
engage par la Commission europenne devant la Cour de justice de
lUnion au sujet de la CSG et du CRDS prlevs sur les revenus du
patrimoine de personnes physiques, fiscalement domicilies hors de
France et dpendantes soit du rgime de scurit sociale dun autre tat
membre, soit du rgime de la CFE
Il lui avait rappel que, selon la jurisprudence europenne, la rgle est
que les non-rsidents ne doivent sacquitter des prlvements sociaux qu la
condition quils profitent effectivement du systme franais de protection
sociale .
Lors de ce mme dbat budgtaire, il avait mis en vidence que la CSG et le
CRDS pesant dsormais sur des Franais qui ne bnficient en rien du systme
de cotisation sociale, il existait un risque non ngligeable que la procdure
dinfraction lance par la Commission europenne naboutisse, terme,
une condamnation de la France, et par consquent une abrogation de
larticle 29 de la loi de finances rectificative pour 2012.
Par ailleurs, peu avant la fin de lanne, la Commission europenne a dcid de
lancer une procdure dinfraction complmentaire (EU Pilot n 5973-13) au sujet
des prlvements sociaux sur revenus de placement (plus-values).
Enfin, le 28 novembre 2013 le Conseil dtat, dans le cadre dun litige
opposant ladministration fiscale un Franais tablis hors de France, a
saisi la CJUE dans le cadre dune question prjudicielle (Aff. C-623-13).
Question prjudicielle

 Des prlvements fiscaux sur les revenus du patrimoine tels que la

contribution sociale sur les revenus du patrimoine, la contribution pour le
remboursement de la dette sociale assise sur ces mmes revenus, le
prlvement social de 2 % et la contribution additionnelle ce
prlvement, prsentent-ils, du seul fait quils participent au financement de
rgimes obligatoires franais de scurit sociale, un lien direct et pertinent
avec certaines des branches de scurit sociale numres larticle 4 du
rglement [(CEE) n 1408/71 du Conseil], du 14 juin 1971, relatif lapplication
des rgimes de scurit sociale aux travailleurs salaris, aux travailleurs non
salaris et aux membres de leur famille qui se dplacent lintrieur de la
Communaut et entrent-ils ainsi dans le champ de ce rglement ?
La CJUE va donc devoir donner son interprtation sur la conformit au
droit communautaire de larticle 29 de la loi de finances rectificative
pour 2012, et les perspectives dune dclaration de non-conformit
deviennent une ralit.
Cest pourquoi le dput Frdric Lefebvre a demand si le
Gouvernement envisageait des mesures correctives dans un premier
temps et sil entendait revenir lors dun prochain texte budgtaire afin
de se prmunir contre le risque contentieux europen dans un second
temps.