I am trading a market neutral long/short equity portfolio. Right now I am trading cash equities, but I am interested in replacing some or all of the cash equities with derivatives, either single stock futures or equity swaps. I would like some input if anyone has an opinion about the cheapest instrument, and any hidden drawbacks.

I see that PanAgora's market neutral fund holdings are entirely total return swaps, which suggests to me that total return swaps are cheaper than trading the cash equities. https://www.putnam.com/literature/pdf/HL801-243c30e4224a0252fbb41730483c3f49.pdf Could there be another reason that they choose total return swaps?

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    $\begingroup$ operational convenience. Tracking dividends, stock borrow costs and availability, etc on dozens of stocks in real time. A traditional fund management house with billions in stock mutual funds has to have a big and pricey operations team to do this. Macro funds and boutiques don’t. Easier to outsource, call up 3 banks for a TRS quote, go with the cheapest. $\endgroup$ – demully Oct 5 '19 at 7:46

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