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Long-Short Equity Fund

What Are Long-Short Funds?

Long-short funds take both long and short positions in stocks and related derivatives.

Here’s what we mean by "short" and "long" positions: If you believe a stock’s value will increase over time, you would want to buy it and hold it, which is taking a long position. On the other hand, if you anticipate that a stock’s price will decrease in the short term you might want to take a short position. To do this, you would borrow shares of the stock and sell them to another investor (even though you don’t own them). If you can sell the stock to that new investor for a higher price than what it will cost you to repurchase the shares to cover your borrowing, you will profit from short selling.

If the stock’s price keeps rising, though, the short seller will have to repay the borrowed shares at a higher price than they sold the shares for. Because stock prices can (in theory) rise indefinitely, short-selling can lead to potentially unlimited losses. With a long position, by contrast, an investor’s potential gains are unlimited but the most you could lose is 100% of what you invested.

Some funds that fall into this category will shift their exposure to long and short positions depending on their macro outlook or the opportunities they uncover through bottom-up research. Some funds may simply hedge long stock positions through exchange-traded funds or derivatives. At least 75% of the assets are in equity securities or derivatives.

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