The AQR Diversified Arbitrage Fund – Class I (ADAIX) is an alternative mutual fund that seeks long-term absolute returns over a reasonable period regardless of equity market (VFINX) ups and downs. The fund primarily uses its diversified arbitrage strategy, which is a combination of three traditional hedge fund arbitrage strategies: merger arbitrage, convertible arbitrage, and event-driven.
The Merrill Lynch Three Month Treasury Index, which measures the performance of high-quality, short-term cash-equivalent investments, acts as the primary benchmark for ADAIX. The below chart shows the historical performance comparison of the ADAIX with its benchmark.
Although ADAIX has given comparatively lower returns to its investors than the benchmark, its total annualized return since inception on January 15, 2009, until December 31, 2015, was 1.3%. This return was higher than its benchmark’s return of 0.1% during the same period. The fund’s poor run has continued with -1.6% year-to-date (or YTD) returns as of January 25, 2016.
The AQR Diversified Arbitrage Fund – Class I (ADAIX) primarily consists of direct and indirect positions in the US equity markets. The fund takes both long and short positions in the major equity stocks. A long position is entering into a contract to buy a particular asset at a future date with the expectation that the asset will rise in value. A short position is opposite to the long position where the expectation is bearish. As of December 31, 2015, the top long holdings of the fund include VeriSign (VRSN), Tempur Sealy International (TPX), T-Mobile US (TMUS), and Alibaba Group Holdings (BABA).
The next article will undertake a detailed study of ADAIX’s portfolio.