Dedicated Short Bias

What Is a Dedicated Short Bias?

Dedicated short bias is a hedge fund strategy that keeps a net short exposure to the market through a combination of short and long positions. A dedicated short bias investment strategy endeavors to capture profits when the market declines by holding investments that are overall positioned to benefit when the market or investments decline.

Dedicated short bias funds will in any case keep a hedge of sorts with long positions in certain securities. This endeavors to limit losses when a bull market is in full force. Notwithstanding, they are intended to profit when a bear market sets in.

Grasping a Dedicated Short Bias

A dedicated short bias is a directional trading strategy that includes taking a net short position in the market. As such, a bigger extent of the portfolio is dedicated to short positions instead of to long positions. Being net short is something contrary to being net long. Hedge funds that keep a net long position are known as dedicated long bias funds.

Dedicated short bias ETFs incorporate instruments like ProShares UltraShort 20+ Year Treasury, Invesco DB US Dollar Index Bearish, Short Dow30 ProShares, etc. An investor ought to have the option to tell from the name that a fund or ETF has a dedicated short bias.

From Shorting to a Short Bias

Preceding the long-term bull market for U.S. equities that took place during the 1980s and 1990s, many hedge funds utilized a dedicated short strategy, as opposed to a dedicated short bias strategy. The dedicated short strategy was one that solely took short positions. The dedicated short funds were for all intents and purposes obliterated during the bull market, so the dedicated short bias fund arose and took a more balanced approach. The long holdings are sufficient to keep losses manageable, in spite of the fact that funds can in any case run into issues with leverage and capital flight assuming losses go on for a really long time.

The Challenge of Maintaining a Dedicated Short Bias

Focusing on a bias, whether long or short, puts these hedge funds in a difficult situation functionally. Even when a bull market has kept on gutting a hedge fund for a long period of time, the fund manager must reposition over and over to lay out the net short as the long positions fill in value. Of course, when the market eventually inverts, these dedicated short bias funds race ahead.

There are other hedge fund strategies that permit the fund manager to go long or short without stressing over what direction the bias is shifted. These hedge funds are not market neutral, yet they permit positional shifting fully intent on augmenting profits no matter what the overall market bearing. Curiously, these long/short equity funds frequently have a dedicated long bias that arises normally over the long haul.

All things considered, these more flexible arrangements will experience issues matching the performance of a dedicated short bias fund when the market is in a prolonged decline since there will be a lag time in adjusting positions that short fund will not need to deal with.