Long-short strategies offer opportunity

18-Aug-2017

By Sarah Kendell

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Long-short equity strategies present opportunities for investors and fund managers alike as they allow the market risks inherent in equities investment – particularly in the current, macro-dominated market climate – to be reduced, according to Tribeca Investment Partners.

Speaking to financialobserver, Jun Bei Liu, deputy portfolio manager for Tribeca’s Alpha Plus Fund, said while long-short strategies were typically thought to belong in the ‘alternatives’ bucket when it came to portfolio construction, they often carried less risk than long-only equity strategies that were given much larger allocations in client portfolios.

“Long-short strategies are still on the fringe because people tend to view this sort of fund as a hedge fund that is high risk [and] high volatility, but it’s not,” Liu said.

“When you look at the risk profile, it’s actually that [long-short managers] can make more money off the same amount of risk because of the fact we can eliminate a lot of risk that is inherent in a long-only portfolio, so it’s actually less risky compared to a long only manager.”

She said by adopting long and short positions on stocks in similar industries or with similar market exposure, long-short managers could hedge away many of the market risks inherent in long-only stock portfolios, such as currency and regulatory risks.

Liu cited Mercer figures that indicated while long-short strategies were still in the minority in the Australian funds management market, they were displaying considerable promise and value compared to their long-only counterparts.

“There are about five or six long-short managers [in Australia] and in aggregate they have all performed better than long-only managers – that is all because we can manage the risk so much better than the long-only managers,” she noted.

“In the United States there is a much larger group of long-short managers and again the performance has been substantially better [than long-only].”

In light of this, Liu suggested domestic managers’ reluctance to embrace long-short strategies was leaving them at a disadvantage to their global fund manager peers.

“These days you can see increasing short positions in the Australian market, a lot of them dominated by international managers, so domestically a lot of fund managers are being left behind,” she said.

“They keep wondering why their performance is eroding year after year – it makes it much harder to outperform because these short sellers are coming in and creating new risk factors for long-only managers, so they need to catch up.”

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