Understanding Smart Execution Strategies
Smart execution strategies are nothing but some tactics that we may use to seek better prices & cost optimisation.
The differentiation lies not in what we buy, but in how we obtain this exposure, and how we implement and execute trades.
The scheme seeks to employ appropriate instruments & timing to manage transaction and impact costs and may deploy the below strategies to get exposure in a cost-efficient manner:
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Single stock futures at a discount: When a stock's near month futures trade below the cash (spot) price, we may use such futures aiming to obtain exposure more efficiently (subject to limits and regulations).
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Index futures at a discount: Similarly, if index futures trade below index levels, we may use such futures to obtain exposure efficiently.
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Merger related arbitrage: When a Company in an Index is merging with another firm, the scheme may buy the stock which is at a discount to the announced merger ratio up to permissible limits.
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Smarter rebalancing: When the Nifty 100 constituents' change, we may rebalance gradually rather than on the exact index date to seek better execution.
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Small opportunistic active share: Around corporate actions (demergers/special situations), we may phase entries/exits to manage liquidity and impact costs. The aim is to keep overall active share low (<10%).
