Event driven investing refers to an investment strategy that aims to capitalize on price movements triggered by anticipated corporate events and news. Some common event driven strategies include merger arbitrage, distressed securities investing, and catalyst driven investing. The introduction to event driven investing pdf provides an overview of this investment approach and key concepts for investors to understand. It introduces some advantages of event driven strategies such as non-correlation to broader markets and exploiting market inefficiencies around corporate events. The pdf also covers different types of event driven strategies, risk management techniques, and walks through an example investment thesis. Overall, the introduction pdf serves as a useful primer for investors looking to learn more about event driven investing and how it can be incorporated into a portfolio.
Merger arbitrage aims to profit from the spread between a target’s current price and offer price
One of the most common event driven strategies covered in the introduction pdf is merger arbitrage. This involves buying shares of the target company after a merger announcement and shorting the acquirer, with the goal of profiting from the difference between the current trading price and final merger consideration. As the merger closing date approaches, the spread typically narrows allowing for gains. The pdf provides details on factors impacting merger spreads such as deal risk, financing risk, and regulatory risk. It also discusses risks of merger arbitrage including deals falling through and the need for thorough due diligence.
Distressed securities investing focuses on companies in bankruptcy or financial distress
Another event driven strategy highlighted in the pdf is distressed securities investing. This involves investing in bonds, bank debt, trade claims, and equities of companies in financial distress, bankruptcy, or restructuring. The goal is to profit from the upside when the companies emerge from distress. The introduction covers how distressed investors analyze companies using metrics like cash burn rate, valuation of assets, and restructuring scenarios. It also discusses risks such as getting wipeouts on positions if restructurings fail. But successful distressed investing can lead to highly uncorrelated returns.
Catalyst driven strategies take positions expecting specific events to propel gains
Catalyst driven investing aims to profit from major events like product approvals, litigation outcomes, or management changes that act as catalysts to move a stock price. As the pdf explains, the key is identifying events that are probable and not fully priced into the stock already. It can involve buying equities ahead of positive catalysts or shorting stocks with upcoming negative events. Risk management is critical to limit losses if catalysts do not materialize as expected. The introduction provides examples like biotech drug approvals, litigation events, and activist investors shaking up management.
Event driven strategies can provide non-correlation and exploit inefficiencies
A major benefit of event driven investing covered in the pdf is non-correlation to broader equity and bond market moves. Returns are driven by idiosyncratic corporate events rather than macro factors. Additionally, event driven strategies aim to capitalize on market inefficiencies in pricing around mergers, bankruptcies, and other events. However, the introduction stresses the need for specialized research and active management. Computational methods are sometimes used to screen for events and model outcomes. Dedicated risk management is required given the unpredictable nature of some events.
The pdf provides a useful introduction to event driven investing for investors
Overall, the introduction to event driven investing pdf delivers a concise yet insightful overview of this investment approach. It explains what event driven investing encompasses, walks through major strategies like merger arbitrage and distressed debt, discusses advantages and risks, and provides context on portfolio implementation. For investors looking to learn about event driven strategies, this pdf serves as an accessible starting point to understand key concepts before diving deeper into specific techniques.
The introduction to event driven investing pdf covers the basics of this investment approach focused on corporate events, including common strategies like merger arbitrage, catalyst driven, and distressed investing. It highlights potential advantages like non-correlation to markets but also risks requiring active risk management. For investors new to event driven strategies, the pdf delivers a useful primer to understand core concepts before further research.