Long/Short Equity: Sector in Brief

May 2020

Long/Short Equity

With Equity Long/Short Strategies receiving greater attention from bfinance clients amid current market conditions, this educational research note outlines key sub-strategies and historic performance.

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Dislocation and Distressed Investment Opportunities

Performance during and after volatile periods: Equity Market Neutral strategies show consistent returns through market cycles, while broader Equity L/S strategies typically exhibit stronger post-disruption performance as markets ‘normalise’.

Types of L/S equity fund: although the sector is dominated by Net Long strategies, this is a diverse space including 130/30, Variable Bias, Low Net Exposure, Equity Market Neutral and Short Bias funds.

Key questions when selecting L/S equity managers: should investors opt for managers with a broad investment universe or more narrow specialists? Is there evidence of robust value-add from portfolio construction, portfolio management or stock-picking?


Dislocation and Distressed Investment Opportunities

Equity Long/Short strategies are receiving greater attention from bfinance clients amid the current market conditions, with eVestment data confirming inflows at an industry level. There is also anecdotal evidence that liquid alternative multi-managers are planning to increase allocations to both Equity L/S and Macro strategies in response to the 2020 pandemic.

Here, the bfinance research team provides a primer on this sector, reviewing the rationale underpinning strong allocations during and after particularly volatile periods – including stock-specific dislocation and risk factor dislocation. There are a range of different strategy types for investors to consider, with notable differences around the degree of net equity beta exposure, geographical coverage and the composition of the short leg (i.e. ‘double alpha’ versus ‘hedged equity’).


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This commentary is for institutional investors classified as Professional Clients as per FCA handbook rules COBS 3.5R. It does not constitute investment research, a financial promotion or a recommendation of any instrument, strategy or provider. The accuracy of information obtained from third parties has not been independently verified. Opinions not guarantees: the findings and opinions expressed herein are the intellectual property of bfinance and are subject to change; they are not intended to convey any guarantees as to the future performance of the investment products, asset classes, or capital markets discussed. The value of investments can go down as well as up.

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