Market Neutral: Engineering Return and Risk

Abstract

Much like satellite management, market-neutral investing offers investors the opportunity to pursue high returns, but investors must match these returns with the risk. Managers that use the market-neutral portfolio-construction technique are free of index constraints and are free to allocate resources where markets are most inefficient and where manager skill can add the most value. Of course, if the manager believes markets are efficient and if the manager does not have the skill to offset the transaction costs, the manager / client should be a passive investor in that market.