Investors and advisers alike are most familiar with ‘long-only’ investing. Short selling is often perceived negatively and attributed to day traders. However, as outlined in this CPD-accredited article, a long/short strategy might result in better returns and lower volatility for investors.
What is a long/short equity strategy?
Long/short equity strategies are designed to achieve equity-like returns with less volatility than the equity market. At its most basic, a long/short strategy seeks to profit from share price appreciation in its long positions and price declines in its short positions. Such strategies aim to provide investors with returns that beat their respective benchmark, whatever the prevailing market conditions.
In managing a long/short strategy, the investment manager can benefit from rising share prices by taking a long investment position in selected companies they believe will rise in price. They can also profit from falling share prices by taking a short position in companies they expect will fall in value.
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