CAIA Level II: Advanced Core Topics in Alternative Investments, 2nd Edition

CHAPTER 36

Fundamental Equity Hedge Fund Strategies

Equity hedge fund strategies may be differentiated by the extent to which positions are determined using discretionary techniques rather than systematic techniques. Discretionary techniques usually rely on fundamental analysis, while systematic techniques rely more on technical analysis. Furthermore, discretionary techniques often depend on qualitative analysis, while systematic techniques depend more on quantitative analysis. This chapter provides an in-depth review of fundamental and qualitative equity hedge fund strategies. Chapter 37 discusses equity hedge fund strategies that are more quantitative and systematic.

Equity hedge fund strategies also form spectrums regarding the typical directional bets that are taken, the extent to which the directional bets are allowed to vary in an attempt to time markets, and the use of leverage. Common equity hedge fund strategies are short bias, equity market neutral, long/short, and leveraged strategies, such as 130/30 funds. This chapter focuses on fundamental equity hedge fund strategies in the context of equity long/short strategies, although fundamental strategies can be deployed throughout the directional and leverage spectrums of equity hedge funds.