Fund Spy

The Long and Short on Long-Short Equity Funds

Patricia Oey

Those who feel that the current market rally will soon run out of steam can consider long-short equity funds. Long-short equity funds may provide some diversification benefits because of their less volatile exposure to equity markets.

Managers here typically seek to generate returns from two sources: first by some exposure to equity beta (or the performance of equity markets) and second from stock selection--holding stocks they like in a long portfolio and shorting stocks they don’t like in a short portfolio.