Long-short equity strategies have been used for a long time, but the current volatility and uncertainty plaguing the market is markedly influencing this investment approach. Writing for Firstlinks, Tribeca’s Jun Bei Liu discusses short selling – how it works and the multiple roles it plays.
Shorting is a controversial topic in Australia and has often been unfairly blamed for creating excessive volatility in markets. However, short selling doesn’t change the underlying fundamentals of a business. Shorting creates opportunities for investors with differing views, aids in price discovery and provides greater market depth.
Traditional long-only fund managers are, by definition, skewed towards identifying opportunities to buy, whereas those managers that adopt a long-short approach can take a position in a range of investment opportunities across a much wider spectrum of investment options through both buying and short-selling.
The most obvious benefit of long-short investing, therefore, is that it offers investors the ability to benefit from both rising and falling prices, whatever the market conditions. A long-short equity strategy seeks to profit from share price appreciation above the index in its long positions as well as from price declines below the index in its short positions.
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