The only discretionary sleeve is Special Situations, and that is intentionally kept as a relatively small part of the overall portfolio. Read more: ETMarkets Smart Talk: Bond yields may rise further over the next few months; avoid aggressive duration and credit bets: Suyash ChoudharyHow 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. Read more: PMS Talk: AI, defence and electronics manufacturing are the next growth engines, says Vaibhav AgarwalHow 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.

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