Chapter 1

Introduction

Investors are spoiled for choices when it comes to investment styles. There is no consensus on style even among the greatest money managers. Choosing of money managers to shadow requires careful consideration, as not all investment styles are conducive to cloning. Classifying money managers by their style is a practical initial step. This can be confusing, for many managers do not adhere solely to one style. Listed here are the most popular investment styles. Though they are often interchangeable, there are some differences among them:

  • Directional: Directional managers forecast the turn of individual securities, as well as that of the overall market, based on analysis. Regardless of the type of analysis, the underlying theme is that the strategies they employ (long/short, managed futures, global macro, and dedicated shorts) rely on the outcome of the study to make a buy/sell decision. The long/short strategy, a favorite among money managers, is when directional bets are made both on the long and the short side. Global macro strategy banks on the analysis of the macroeconomic developments of the world to make investment decisions. Managed futures tactics depend on commodity trading advisors (CTAs) taking futures contracts and options positions based on fundamental or technical analysis.
  • Event driven: Event-driven managers are on the prowl to profit from some expected event, the effect of which is yet to be factored into the market. Events they are drawn to ...

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