Relative value arbitrage is an investment strategy that involves the use of multiple investment strategies to earn returns. An investor using this strategy simultaneously buys and sells different securities to benefit from the "relative value" of the two securities. Though this strategy sounds simple, it isn’t easy to implement.
Investing in mutual funds that use this strategy is one of the best ways to benefit from this strategy without burdening yourself with the task of implementing it.
Best Performing Relative Value Arbitrage Funds
We have ranked the best performing relative value arbitrage funds on the basis of their past one year return data (from money.usnews.com). Following are the six best performing relative value arbitrage funds, in reverse order:
6. Westwood Alternative Income Fund (3%)
Westwood Alternative Income Fund (MUTF:WMNAX) uses an absolute return strategy by primarily investing in income producing convertible securities. The fund maintains a portfolio that has low volatility and low correlations with equity and fixed income markets.
WMNAX has more than $157 million in total assets, and has returned over 1% in the last six months and over 6% in the last three years. The top five holdings of the fund are: Ford Motor Company (NYSE:F) 0%, Tilray (NASDAQ:TLRY) 5%, SFL Corporation (NYSE:SFL) 4.875%, Apollo Commercial Real Estate Finance (NYSE:ARI) 4.75%, and Southwest Airlines (NYSE:LUV) 1.25%.
5. Absolute Convertible Arbitrage Fund ( 3%)
Absolute Convertible Arbitrage Fund (MUTF:ARBIX) mainly invests in a diversified portfolio of convertible securities (debt securities and preferred stocks) of U.S. and foreign companies. ARBIX has more than $630 million in total assets, and has returned over 1% in the last six months and over 6% in the last three years. The top five holdings of the fund are: Perficient (NASDAQ:PRFT) 1.25%, Perficient, First Am Treas Obli-X, Varex Imaging (NASDAQ:VREX) 4%, and Workiva (NYSE:WK) 1.125%.
4. American Beacon SSI Alternative Income (4%)
American Beacon SSI Alternative Income Fund (MUTF:PSCIX) mainly uses the convertible arbitrage strategy to invest in convertible securities, including convertible preferred securities, as well as establishes short positions, or hedges, in the common stock of the companies issuing convertible securities. It may also invest in ETFs (exchange-traded funds), options and currency forwards to hedge its risk.
PSCIX has more than $159 million in total assets, and has returned over 1% in the last six months and almost 7% in the last three years. The top four holdings of the fund are: American Beacon US Govt MMkt Select, ProShares Short 20+ Year Treasury (NYSE:TBF), MFA Financial (NYSE:MFA) 6.25%, and Pennymac Corp. 5.5%.
3. Calamos Market Neutral Income (5%)
Calamos Market Neutral Income Fund (MUTF:CVSIX) invests in convertible securities of U.S. companies, equities, as well as uses short selling and total return swaps to earn a return and hedge against market risk. The average maturity of convertible securities varies between two to ten years. CVSIX has more than $18 billion in total assets, and has returned over 2% in the last six months and over 5% in the last three years. The top four holdings of the fund are: Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), SPDR® S&P 500® ETF Trust (ASX:SPY) and Amazon.com (NASDAQ:AMZN).
2. AQR Diversified Arbitrage Fund (6%)
AQR Diversified Arbitrage Fund (MUTF:ADAIX) aims to outperform the ICE BofAML US 3-Month Treasury Bill Index. It invests in several instruments, including warrants, options, convertible securities, debt securities, futures contracts, forwards and more. ADAIX has more than $1.30 billion in total assets, and has returned almost -1% in the last six months and over 13% in the last three years. The top three holdings of the fund are: Ubs Money Ser, United States Treasury Bills 0%, and ETRSI USSPX LIBO USD 1121.
1. Lazard Enhanced Opportunities Portfolio (7%)
Lazard (NYSE:LAZ) Enhanced Opportunities Portfolio (MUTF:LEOIX) uses a hedged strategy and invests primarily in convertible fixed income and preferred securities. It generally invests in U.S. companies, but may invest in non-U.S. companies as well. LEOIX has more than $148 million in total assets, and has returned almost 3% in the last six months and over 8% in the last three years. The top four holdings of the fund are: United States Treasury Bills 0%, Innoviva (NASDAQ:INVA) 2.125%, Hope Bancorp (NASDAQ:HOPE) 2%, and Atlas Air Worldwide Holdings (NASDAQ:AAWW) 2.25%.