Article – Market-Neutral Investing – Long-Short Hedge Fund Strategies_ Joseph G Nicholas

2013-02-11 094931

The term “market-neutral investing” refers to the use of a group of investment strategies intended to neutralize certain market risks by taking offsetting long and short positionsin related instruments.At fi rst glance, these strategies seem to be quite different. But all market-neutral strategies derive returns from the relationship between long and short elements of the portfolio, whether that relationship occurs within the portfolio or within the instruments themselves. These strategies look for investments that are not correlated. Correlatedinvestments offer similar returns under similar market   conditions. Market-neutral strategies look for pairs of investments that behave differently under a given set of market conditions.

 

Market-neutral strategies provide returns similar to those of long-only strategies, but with less  volatility. Their risk-to-return ratios are greater than long-only strategies. Most mutual funds cannot sell securities short, but money managers at large institutions have an opportunity to capitalize off ineffi ciencies between various long/short positions.Thus, they are the leading market-neutral  practitioners. Market-neutral strategies require a substantial investment in information technology andinfrastructure. Managers and predictive models vary, but each market-neutral strategy has a  core return. Managers only out-perform the core return in the short term. Choosing the right strategy is more important than choosing any particular manager.  The key to understanding market-neutral strategies is to identify the long and short exposures in each and discover which are hedge relationships. You can be fooled easilyby appearances in this fi eld. Thus, looking beneath the surface to understand these strategies is vitally important. Seven distinct  market-neutral and hedged strategies are available

 

 

 

File Size: 146KB
File Type: PDF
Pages: 5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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