CHAPTER 2
Return Enhancement
An investment strategy’s returns can be improved upon in various ways, and many investment techniques need the boost. Where unassisted returns are low, as in riskless arbitrages, leverage is required or the trade is simply not worth the trouble and risk of pursuing. Use of hedges can change a strategy’s risk characteristics, often in ways that make an otherwise excessively speculative strategy a tolerable risk, and may also provide investors with a source of leverage. Deliberate use of illiquid instruments in directional and cash flow strategies can exploit the illiquidity discount attached to certain instruments as a way of increasing the returns of the primary investment technique.
Tactical allocation and investor ...

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