Altiva Hybrid Long-Short Fund parks 70%+ in arbitrage, debt as volatility stays high

The Altiva Hybrid Long-Short Fund has reinforced its positioning as an all-weather, low-volatility investment strategy, according to its January 2026 portfolio update. Managed by Edelweiss Mutual Fund under the Specialized Investment Fund (SIF) framework, the strategy is designed to generate steady income and moderate capital appreciation across market cycles by blending arbitrage, fixed income, derivatives and selective equity exposure.

According to a fund note, at a time when equity markets have seen sharp swings and global interest rate expectations remain fluid, the fund’s construction leans heavily towards stability.

Fund allocation

More than 70% of the portfolio is allocated to arbitrage and fixed income strategies, which form the core of the investment approach. Cash–future arbitrage and covered call or put strategies together account for around 33% of assets, while fixed income, including treasury bills, contributes roughly 37%. This allocation anchors returns while limiting drawdowns during periods of heightened volatility.

The fund has continued to benefit from favourable arbitrage conditions. Cash–future arbitrage spreads remain close to 7%, while covered call strategies are delivering annualised returns in the range of 10–12%. These spreads have helped the portfolio generate predictable accrual-based income even as broader equity markets have struggled for direction. Fund managers noted that these strategies are particularly effective in range-bound or uncertain market environments.

Equity exposure

Equity exposure is deliberately capped and diversified. As of the end of January 2026, equity and equity-related investments stood at approximately 33% of the portfolio. This exposure spans a mix of large-cap, mid-cap and select new-age companies, with no single stock carrying outsized risk. The intent is not to chase aggressive equity returns, but to supplement income-oriented strategies with selective growth opportunities.

Derivatives form another important, though tightly controlled, component of the portfolio. About 12% of assets are deployed through option-based strategies such as straddles and strangles. These are used tactically, particularly around corporate earnings seasons, to enhance risk-adjusted returns rather than for directional bets. The fund’s managers emphasise that derivatives are employed with strict risk limits to avoid sharp volatility spikes.

On the debt side, the portfolio remains focused on high-quality instruments. The fixed income book carries a yield to maturity of around 8.2%, with a modified duration of approximately 2.1 years. This reflects a conservative stance on both credit risk and interest rate sensitivity, balancing income generation with capital preservation.

Tax efficiency

A key differentiator for the Altiva Hybrid Long-Short Fund is tax efficiency. Gains held for over 12 months are taxed as long-term capital gains at 12.5%, making the structure more tax-efficient than many Category III alternative investment funds or note-style products that pursue similar strategies.