SIFs offer a middle ground between arbitrage and equity risk: AlphaGrep MF CEO Bhautik Ambani

With investors caught between low-risk arbitrage funds and high-risk equity, PMS and AIF products, AlphaGrep Mutual Fund is positioning its Eminence Hybrid Long-Short Fund as a middle-ground allocation. The strategy combines market neutral and relative value approaches, special situations, options, arbitrage and fixed income to pursue diversified returns without relying entirely on the direction of the equity market.

Edited excerpts from a chat:

What problem does Eminence solve, and will SIFs become a meaningful allocation category?


There is a clear gap in many investor portfolios today. The choice is often between arbitrage funds at one end and full-risk equity funds, PMSs or AIFs at the other. Many investors are looking for an allocation that aims to deliver returns above traditional low-risk products without taking equity-like directional risk.

Eminence is designed to occupy that middle ground. It combines multiple market-neutral and relative-value strategies within a disciplined risk framework, with the objective of generating diversified return streams that are not dependent on the direction of the equity market.

I believe SIFs have the potential to become a meaningful allocation category rather than remain a niche product. However, that will depend on how advisors position them. They should be viewed as a distinct allocation within a portfolio rather than simply another equity product. Investors should also look beyond the "Hybrid Long-Short" label. Different strategies can vary significantly in their construction, risk profile and sources of return, so they should not be viewed as interchangeable.

How do you decide which sleeve gets more capital, and what stops over-dependence on one engine?

Capital allocation is systematic and driven by predefined risk budgets rather than discretionary market calls.

Think of it like building a cricket team. Success comes from having multiple players contributing rather than depending on one star performer. Similarly, we diversify across independent return engines, allocating capital based on the opportunity available in each strategy, the expected risk-adjusted return and the correlation between sleeves.

Each strategy operates within clearly defined risk limits, ensuring that no single return engine dominates the portfolio. Diversification across strategies is just as important as diversification across securities.

The only discretionary sleeve is Special Situations, and that is intentionally kept as a relatively small part of the overall portfolio.

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How do the models identify opportunities in the long-short portfolio, and how do you manage divergence between the long and short books?

Our investment process is built around identifying relative return opportunities rather than predicting the direction of the market. The models evaluate companies across a broad range of quantitative signals—including valuation, quality, momentum, earnings revisions and other proprietary factors—to identify stocks that are expected to outperform and those expected to underperform.

The portfolio is then constructed so that the long and short books broadly offset market, sector and factor exposures, allowing returns to be driven primarily by stock selection rather than market direction. The objective is to generate alpha from the relative performance of the long book versus the short book while maintaining a market-neutral risk profile.

Risk management is central to the process. Position sizes are determined within predefined limits, market and factor exposures are continuously monitored, and the portfolio is systematically rebalanced as signals evolve. No single stock, sector or theme is allowed to have a disproportionate impact on portfolio returns.

Because the investment process is systematic, portfolio construction, risk management and rebalancing all follow predefined models rather than discretionary market views. The objective is to deliver a repeatable and disciplined investment process across different market environments.

What should investors expect on volatility, drawdowns and recovery, and who should not invest?

The strategy is designed to have meaningfully lower volatility than a traditional long-only equity portfolio, but investors should recognise that lower volatility does not mean no risk. Drawdowns are possible, particularly during periods when market relationships temporarily break down or volatility rises sharply.

Recovery periods will depend on market conditions, which is why investors should evaluate the strategy over a full market cycle rather than over a few months. We generally recommend an investment horizon of at least 24 months.

It is also important to be transparent that this strategy is new in its current format. While the underlying investment philosophy is built on systematic processes that AlphaGrep has employed for years across its investment businesses, expectations around performance characteristics are based on backtests, and backtests have inherent limitations.

This strategy may not be suitable for investors who have a short investment horizon, expect equity-like returns, or are uncomfortable with periods of flat or modestly negative performance.

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How are you reading the current market structure, and where are the market-neutral opportunities?

My personal view is that this is a stock-picker's market rather than a broad market-direction market.

The macro backdrop remains mixed, with elevated global interest rates, geopolitical uncertainty and commodity price risks creating periodic volatility. While index returns may be more moderate, the performance gap between companies has widened considerably.

That environment generally creates a richer opportunity set for market-neutral strategies because they rely more on identifying relative mispricing between securities than on predicting whether the market itself will rise or fall. Periods of higher volatility can also improve opportunities for volatility-based strategies, provided risk is managed in a disciplined manner.

How cheap is the market after the time and price correction?

In my view, the correction has made parts of the market more reasonably valued, but I would not describe the market as broadly cheap.

Valuation dispersion has widened considerably. Some sectors continue to trade at demanding valuations, while others have become more attractive. In this environment, selectivity is likely to matter much more than taking a broad view on the index.

For long-term investors, maintaining a diversified portfolio and staying disciplined is generally more important than attempting to perfectly time market entry.

The ongoing Q2 earnings season looks positive but trouble could come from Q3. Do you agree?

I would be cautious about building an investment view around any single quarter.

The more important question is whether earnings expectations remain aligned with the evolving macro environment. Investors should monitor factors such as input costs, commodity prices, global demand and corporate margins rather than focusing only on quarterly headline numbers.

What I expect is increasing divergence between companies rather than a uniform earnings trend across the market. Some businesses will continue to perform well, while others may face greater pressure. That again reinforces the importance of stock selection over broad market direction and is one of the reasons market-neutral strategies can be particularly relevant in the current environment.