*"1. Contrast stock-based and derivative-based semiactive investment strategies.*

*Solution to 1:*

_A stock-based semiactive approach involves controlled under- and overweighting of securities relative to their index weights. This approach attempts to pick up active return through equity insights. By contrast, **a derivative-based semiactive approach involves using derivatives to equitize cash and attempting to pick up active return by adjusting the duration of the fixed-income positi** _ **on."**

**I understand the equitize cash part…however, what adjusting duration of fixed income position has to do with all this? I thought the reading is about equities strategies. Am I wrong?**

It’s probably best to think of think of the derivative-based approach as a hybrid, equity/fixed-income strategy. They had to stick it in the curriculum somewhere, so they chose equity; it would have been equally out of place in the fixed-income topic.

I haven’t done this reading yet (or any of them for that matter), so my answer is merely based on professional experience, but if it helps, here is another way to think about it:

This type of strategy uses derivatives to get synthetic exposure to the S&P, for example. If you were buying stocks as in the first example, you would need to spend $100 to get $100 exposure; but with derivatives, you only need to put down say $15 or $20 to get $100 notional exposure. That means you have some cash lying around, and some managers use their fixed income expertise to manage that cash and generate additional returns. So instead of adding alpha via some securities overweights/underweights like in the first example, they are adding alpha by managing duration, credit, curve positioning etc of their collateral. Both strategies result in an enhanced S&P exposure.