Aggressive Growth
Invests in equities expected to experience acceleration in growth of earnings per share. Generally high P/E ratios, low or no dividends; often smaller and micro cap stocks which are expected to experience rapid growth. Includes sector specialist funds such as technology banking or biotechnology. Hedges by shorting equities where earnings disappointment is expected or by shorting stock indexes. Tends to be "long-biased."

Capital structure arbitrage
Seeks to profit from inconsistencies in the relative pricing of a firm's debt and equity. Hybrid instruments which span both debt and equity markets play a key role in these strategies.

Convertible Arbitrage:
Convertible securities arbitrage involves the purchase of a security that is convertible or exchangeable for shares of the underlying company (e.g. preferred stock) with a simultaneous short sale of the underlying common stock. This hedge eliminates a significant portion of equity market risk as the prospective gain (loss) on the long convertible security is offset by the loss (gain) on the underlying common stock. This inverse correlation produces returns that are in large part market neutral. Because market-neutral strategies derive their returns from relationships among securities rather than the directional fortunes of an asset class the risk-return profiles of these strategies have low correlations to that of the market. Convertible securities arbitrage complements traditional investments in fixed income and equities because it represents an alternative and uncorrelated source of return.

Distressed Securities
Buys equity, debt, or trade claims at deep discounts of companies in or facing bankruptcy or reorganization. Profits are derived from the market's lack of understanding of the true value of the deeply discounted securities and because the majority of institutional investors cannot own below investment grade securities. (This selling pressure creates the deep discount.) Results are generally not dependent on the direction of the markets.

Emerging Markets
Investing in stocks or bonds issued by companies and government entities in developing countries, usually in Latin America, Eastern Europe, Africa and Asia . Such funds typically employ a short-to-medium-term holding period and experience high volatility.

Equity Long/Short
The manager's objective is to buy (go Long) undervalued stocks and sell (go Short) over-valued stocks. The manager anticipates that the Longs go up in value while the Shorts go down in value. A fund that has more long exposure than short exposure would be Net Long. A fund that has an equal amount of Long and Short exposure is said to be Market Neutral. A fund that has more short exposure than long exposure is said to be Net Short.

Event Driven
Managers of event-driven investment strategies invest in outcomes of the significant events that occur during corporate life cycles such as bankruptcies, financial restructurings, mergers, acquisitions, and the spin-off of a division or subsidiary. The uncertainty about the outcome of these events creates investment opportunities for a specialist who can correctly anticipate their outcomes. Generally, these extraordinary corporate events fall into three categories: Risk Arbitrage opportunities, distressed securities situations, and special situations. Event-Driven specialists will shift the majority of weightings of their portfolios to reflect the corporate events that offer the best investment opportunities.

Fixed Income
Fixed-Income arbitrage specialists' take offsetting long and short positions in related fixed-income securities and their derivatives whose values are mathematically or historically interrelated. The arbitrageurs believe that the relationship is temporarily dislocated or will soon change. They realize a profit when the skewed relationship between the securities returns to its expected range shifts in the manner that the arbitrageur anticipated. The differences between the related instruments are usually slight therefore the arbitrageur uses leverage to magnify the small changes in the relationship between the instruments. The arbitrageur usually neutralizes the position's exposure to interest rate changes to some extent by taking offsetting long and short positions so the risk level is less than it appears to be given the amount of leverage used.

Hedged Equity
The hedged equity strategy involves the purchase of financial instruments that the manager believes are undervalued and setting up corresponding short positions in those the manager determines to be overvalued in order to hedge market risk.

Long-only
An approach that involves no short positions. While most mutual funds hold only long positions, it is uncommon for hedge funds.

Macro
Aims to profit from changes in global economies typically brought about by shifts in government policy which impact interest rates in turn affecting currency, stock, and bond markets. Participates in all major markets - equities, bonds, currencies, and commodities - though not always at the same time. Uses leverage and derivatives to accentuate the impact of market moves. Utilizes hedging but leveraged directional bets tend to make the largest impact on performance (often referred to as Global Macro).

Market Neutral- Arbitrage
Attempts to hedge out most market risk by taking offsetting positions, often in different securities of the same issuer. For example, can be long convertible bonds and short the underlying issuers equity. May also use futures to hedge out interest rate risk. Focuses on obtaining returns with low or no correlation to both the equity and bond markets. These relative value strategies include fixed income arbitrage, mortgage backed securities, capital structure arbitrage, and closed-end fund arbitrage.

Market Neutral- Securities Hedging
Invests equally in long and short equity portfolios generally in the same sectors of the market. Market risk is greatly reduced, but effective stock analysis and stock picking is essential to obtaining meaningful results. Leverage may be used to enhance returns. Usually low or no correlation to the market. Sometimes uses market index futures to hedge out systematic (market) risk.

Market Timing
Allocates assets among different asset classes depending on the manager's view of the economic or market outlook. Portfolio emphasis may swing widely between asset classes. Unpredictability of market movements and the difficulty of timing entry and exit from markets adds to the volatility of this strategy.

Merger Arbitrage (Risk Arbitrage)
Risk or merger arbitrage specialists invest in companies that are being acquired or are involved in a merger. Typically, they will buy the common stock of a company being acquired or merging with another company and sell short the stock of the acquiring company. The target company's stock will usually trade at a discount to the value that it will attain after the merger is completed because all mergers take time and involve some risk that the transaction will not occur. If the transaction fails to be completed, then the price of the target company's stock usually declines.

Risk arbitrage specialists make profits when they correctly anticipate the outcome of an announced merger and capture the spread between the current market price of the target company's stock and the price to which it will appreciate if the deal is completed.

Mortgage Arbitrage
The yield on mortgage-backed securities is typically higher than that on comparable Treasury notes or bonds, in large part as a result of the premium associated with the prepayment risk imbedded in pass-through mortgage securities. Mortgage arbitrage Portfolio Managers typically take long mortgage-backed positions and attempt to hedge interest-rate, prepayment and other risks. Substantial profits may be realized if the Portfolio Manager is able to purchase undervalued securities and hedge properly against interest rate prepayment and other risks.

Multi-Strategy
Investment approach is diversified by employing various strategies simultaneously to realize short- and long-term gains. Other strategies may include systems trading such as trend following and various diversified technical strategies. This style of investing allows the manager to overweight or underweight different strategies to best capitalize on current investment opportunities.

Opportunistic
Investment theme changes from strategy to strategy as opportunities arise to profit from events such as IPO's, sudden price changes often caused by an interim earnings disappointment, hostile bids and other event-driven opportunities. May utilize several of these investing styles at a given time and is not restricted to any particular investment approach or asset class.

Options Arbitrage
An approach that seeks to exploit pricing differentials between similar option contracts or between the price of an option contract and its associated securities.

Pairs Trading
An approach that seeks to identify similar companies whose securities are trading at a wide differential. The manager of such a fund would assume a short position in the overvalued security, while taking a long position in the undervalued one.

PIPES (Private Investments in Public Entities)
An approach in which the fund manager provides financing to publicly traded companies usually in exchange for a privately placed convertible note issued at a discount (Also know as Regulation D Strategy).

Relative Value
The relative value strategy involves taking simultaneous long and short positions in closely related markets. This strategy relies on the exploitation of market inefficiencies without speculating on the direction of interest rates, currency exchange rates or equity prices and without assuming an unhedged exposure to any particular market

Short Selling
Sells securities short in anticipation of being able to rebuy them at a future date at a lower price due to the manager's assessment of the overvaluation of the securities, or the market, or in anticipation of earnings disappointments often due to accounting irregularities, new competition, change of management, etc. Often used as a hedge to offset long-only portfolios and by those who feel the market is approaching a bearish cycle.

Small Cap/Micro Cap
Purchasing stocks issued by small companies. Small-cap companies generally have a $250 Million to $1 Billion market capitalization, while micro-cap companies have less than $250 Million of market capitalization.

Special Situation
Invests in event-driven situations such as mergers, hostile takeovers, reorganizations, or leveraged buy outs. May involve simultaneous purchase of stock in companies being acquired, and the sale of stock in its acquirer, hoping to profit from the spread between the current market price and the ultimate purchase price of the company. May also utilize derivatives to leverage returns and to hedge out interest rate and/or market risk. Results generally not dependent on direction of market.

The rationale is that the abnormal price move was caused by an investor trading on spurious information. Individual pairs will generally not be market neutral but the overall portfolio of pairs can be managed to be market neutral. However, the focus is more short-term than equity market neutral. Exposures to factors such as industry or market capitalization may not be as tightly controlled. Pairs trading can be extended in various ways for example by identifying and trading larger baskets of co-integrated stocks.

Value
Invests in securities perceived to be selling at deep discounts to their intrinsic or potential worth. Such securities may be out of favor or under-followed by analysts. Long-term holding, patience, and strong discipline are often required until the ultimate value is recognized by the market.

Volatility Arbitrage
An approach by which a manager seeks to take advantage of fluctuations and inefficiencies in financial markets, usually the stock market. A common form of volatility arbitrage is an options arbitrage investment strategy, which can be carried out as a market-neutral investment strategy or with a long bias toward volatility. The returns are generally expected to have low correlation to those of the stock or bond markets.