News & Views

Alternative Funds

Written on: January 26, 2018 | By Andrew Chorley |


You may have heard us talk about Long-Short funds recently and perhaps wondered what these are and how they fit into portfolios; well there are a few different types and strategies but in general can be described as:

Long/short equity is an investment strategy generally associated with hedge funds, and more recently certain progressive traditional asset managers. It involves buying equities that are expected to increase in value and selling short equities that are expected to decrease in value.

So what are the benefits and why do we like them?

The current investment climate is difficult with value being pushed out of most asset classes as investors head towards anything offering a yield or potential growth (particularly if the Central Banks are continuing to promote risk taking through Quantitative Easing).

As a result we see risk levels increasing and a traditional “long only” fund would suffer if market declines occur; in contrast a “long-short” fund can offer the best of both Worlds. The opportunity to have both “long” and “short” (benefiting from falling share prices) means that a skilful Manager may be able to provide returns whatever the market direction.

Consider the FTSE-100 over the last year where we have seen growth of 50-60% for some well known firms (Easyjet is a good example); on the other side though we have seen some sizeable declines of 30-40% for some well known names such as WPP and Centrica.

The flexibility that these funds offer may make them ideal for current conditions.

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