LONDON, May 26 (Reuters) - Investment managers, including some hedge funds, are looking for ways to cash in on the volatility in Turkey's markets as the country heads towards a presidential election runoff on Sunday.

Since long-time leader Tayyip Erdogan came out on top in the first round vote on May 14, the lira has tumbled to record lows and Turkey's dollar bonds and equities have plunged, while the cost of insuring exposure to Turkish debt has spiked.

Erdogan's unorthodox policies have stoked volatility for years, and there seems little prospect this will let up anytime soon amid uncertainty over his government's economic plans.

Four prominent funds have shared their ideas using four different asset classes to trade on the uncertainty. The ideas do not represent recommendations or trading positions, which hedge funds cannot reveal for regulatory reasons.

1/ BLUEBAY ASSET MANAGEMENT

* Large active asset manager with 50 different strategies

* Assets under management (AUM): $98 billion

* Founded in 2001

* Long/short strategy with built-in risk management

"From the perspective of a long-short hedge fund, we see opportunities on both the long and short side," said Polina Kurdyavko, head of emerging markets (EM) debt at BlueBay.

Kurdyavko's trade would see investment in long-dated bonds and short-dated credit default swaps (CDS). CDS are usually protect against a bond default, but here they would just be needed to shield against market volatility, Kurdyavko said.

Turkey is no candidate for default, she said. The country's debt levels are not excessive relative to economic output and it benefits from money flows from the Middle East as well as, in part, Russia. Therefore, a debt restructuring would be unlikely but post-election volatility could remain high, Kurdyavko said.

On the short side, she would bet on the falling price of private sector banks’ senior bonds, which she said currently trade expensively.

"Imbalances created in the banking sector due to unorthodox policies are likely to have negative implications for the Turkish economy," said Kurdyavko.

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2/ SANDGLASS CAPITAL ADVISORS

* Invests in event driven EM corporate and sovereign credit

* AUM: $300 million

* Founded in 2013

* Buy high quality hand-picked corporate bonds

Genna Lozovsky, chief investment officer and senior managing partner at Sandglass Capital Advisors, suggested investing in a collection of carefully picked corporate bonds of high-quality Turkish companies that have a dollar linked revenue and a balance sheet with a low level of debt compared to assets.

The kind of firms referred to by Lozovsky have bonds yielding in the mid-teens, he said, without naming examples.

"The Turkish economy may endure a rough ride for a time, (but) there are enough buffers in the economy and these corporates will probably be good to go for the coming period," he said, citing power generation and renewable companies with fixed-price contracts as examples.

"In general, Turkish management are amazing business people who have excellent survival instincts," said Lozovsky. "Some are like cats with nine lives."

3/ DANA POINT CAPITAL

* Emerging markets equity market neutral

* AUM: undisclosed

* Founded in October 2020

* Long certain stocks

Dana Point Capital founder Mohamed Abdel-Hadi said he would invest in the stocks of a "selective basket of U.S. dollar earners".

Those he would consider include U.S. motor companies domiciled in Turkey, an international airlines firm and an oil refinery. These have attractive valuations given the higher risk rating of companies in Turkey and compared to international peers, he said, without naming examples.

Abdel-Hadi said these firms would likely hold their value under different economic scenarios and could be less sensitive to the outcome of the election runoff.

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4/ ASHMORE GROUP

* Long only fund manager

* AUM: $57.7 billion

* Founded in 1992

* Buy protection on Turkish debt, long 5-year CDS

Gustavo Medeiros, head of global macro research at investment manager Ashmore Group, suggested buying CDS.

If there's no change in Turkey's unorthodox economic policies and the central bank does not hike interest rates, CDS should widen to 900 basis points (bps), becoming more profitable for buyers of default protection, said Medeiros. Five-year CDS are currently trading around 663 bps.

"No trade in emerging markets is ever as straightforward as it seems, but remaining cautious in Turkish assets is one of the most straightforward calls to have," said Medeiros.

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Reporting by Nell Mackenzie Graphics by Nell Mackenzie and Marc Jones Editing by Dhara Ranasinghe and Mark Potter

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