Advantage in Volatile Markets: The Strategy Behind BV Portföy's Arbitrage Fund (BVZ)

Especially in times when interest-sensitive investments are in focus and stock markets are experiencing volatility, funds that perform arbitrage on equity and derivative instruments come to the forefront.

Especially in times when interest-sensitive investments are in focus and stock markets are experiencing volatility, funds that perform arbitrage on equity and derivative instruments come to the forefront. But why do arbitrage funds tend to perform relatively better during such volatile or even negatively yielding market periods compared to other types of funds? To answer this, it is helpful to first understand a few key concepts: What is arbitrage? What is an arbitrage fund? What are their strategies, advantages, and disadvantages?

What is Arbitrage?

Arbitrage refers to the opportunity of generating profit from price differences of the same financial instrument across different markets. If a financial product is cheaper in one market and more expensive in another, it can be bought from the cheaper and sold in the more expensive market simultaneously. For instance, if the current price of a futures contract differs from its theoretical price, it creates an arbitrage opportunity.

Arbitrage is well-suited for investors looking to profit from price anomalies across markets with low risk. However, these opportunities are typically very short-lived, requiring rapid analysis and execution, making it both critical and challenging to capitalize on them effectively.

Due to the nature of arbitrage involving simultaneous buying and selling positions (in both equities and derivatives), the fund’s risk level remains relatively low. The absence of open or one-sided positions in the portfolio significantly reduces exposure and downside risk.

Strategies, Advantages & Disadvantages of Arbitrage Funds

Arbitrage funds operate independently of market trends, capitalizing on pricing anomalies rather than market direction. This makes them generally low-risk investments. As mentioned, spotting, analyzing, and acting on these discrepancies requires speed.

Modern arbitrage strategies, particularly statistical arbitrage, rely on advanced algorithms and machine learningtechniques to analyze financial data. These sophisticated computer models identify deviations from fair value and seek to exploit risk-free profit opportunities.

Arbitrage funds aim to generate returns through automated algorithms that detect such opportunities, especially in inconsistencies within derivative pricing. These trades typically involve simultaneous buy and sell positions. Algorithms generate signals based on specific financial data, triggering entry and exit points accordingly.

Moreover, arbitrage funds often help diversify portfolios, reducing overall investment risk—making them suitable for risk-averse investors seeking protection from market volatility. That said, in periods when markets are efficiently priced, arbitrage opportunities may be scarce. In such cases, funds may allocate assets to liquid instruments.

BV Portföy Statistical Arbitrage Fund (BVZ)

BVZ, BV Portföy’s Statistical Arbitrage Fund, was developed as an alternative to deposit and money market funds. Its primary objective is to deliver returns above deposit rates. When compared to other investment funds, money market funds are typically considered its closest benchmark.

As previously mentioned, high-speed technology is crucial to identify and act on pricing anomalies that present arbitrage opportunities. One of the most critical features of BVZ's management is its ability to analyze markets, create strategies, take positions, and profit within microseconds, thanks to the technologies it employs.

A standout characteristic of BVZ is that it hedges market risk by end-of-day, offering deposit-like risk levels while aiming for superior returns.

However, it’s important to remember that, like all funds, arbitrage funds are managed within a forecast framework. If projections do not materialize, losses may occur. While arbitrage is theoretically risk-free, executing it in practice is complex and requires ultra-fast technology—making it difficult to capture these opportunities individually without institutional-grade systems.

Fund Structure and Suitability

BV Portföy Yönetimi A.Ş.’s Statistical Arbitrage Free Fund (TRY) (BVZ) uses various AI algorithms to monitor investor behavior across markets and capitalize on arbitrage opportunities in spot and futures markets through high-speed trading.

It targets both individual and institutional qualified investors seeking returns above traditional deposits over the medium to long term. For individual investors, a 10% withholding tax applies; for corporate entities, it’s 0%, though subject to corporate income tax. As of October 2024, the fund’s risk level is 2.

Since the fund does not carry open positions at the end of each day, it minimizes exposure to pricing risks in spot and futures markets, offering a safe option for investors seeking short-term returns above deposits. 

Why Choose BVZ?

Diversifying your portfolio effectively, understanding the structure of BV Portföy’s investment funds, and identifying the most suitable options for your investment profile is easier with expert guidance.

The most efficient way to manage your investments confidently, diversify your holdings, and minimize risk is through the expertise of BV Portföy.