Long/Short Fund

What Is a Long/Short Fund?

A long/short fund is a type of mutual fund or hedge fund that takes both long and short positions in investments regularly from a specific market segment. These funds frequently utilize several alternative investing methods like leverage, derivatives, and short positions to purchases relatively undervalued securities and sell overvalued ones. Long/short funds may likewise be alluded to as enhanced funds or 130/30 funds.

Seeing Long/Short Funds

Long/short funds ordinarily look to upgrade the returns from investing in a specific market segment by actively taking both long and short positions in securities. Long/short funds utilize changing active management strategies to decide portfolio holdings. They may likewise utilize leverage, derivatives, and short positions which can increase the risks of the fund as well as the fund's possible total return.

Long/short funds address a few similitudes to hedge funds. They try to offer investment strategies with greater risk and greater return likely over standard benchmarks. Generally long/short funds feature higher liquidity than hedge funds, no lock-in periods, and lower fees. Be that as it may, they actually have higher fees and less liquidity than most mutual funds. Long/short funds additionally may require higher minimum investments than other mutual funds. Long/short funds are more closely regulated than hedge funds in this way they have limitations on the utilization of leverage and derivatives where hedge funds don't.

Long/short funds can be a wise investment for investors seeking targeted index exposure with some active management. Long/short funds additionally offer the advantage of hedging against changing market conditions and different trends that active management can account for.

The most common long/short strategy is to be long 130% and short 30% (130 - 30 = 100%) of assets under management. To take part in a 130-30 strategy, a investment manager could rank the stocks utilized in the S&P 500 from best to more regrettable on expected return, as announced past performance. A manager will utilize a number of data sources and rules for ranking individual stocks. Regularly stocks are ranked by selection criteria (for instance, total returns, risk-adjusted performance, or relative strength) over a designated think back period of six months or one year. The stocks are then ranked best to most terrible.

The manager would invest 100% in the highest level stocks and short sell the base ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into highest level stocks, considering greater exposure to the higher-ranking stocks.

Instances of Long/Short Funds

The performance of long/short funds, similar to any hedge fund, will change from one year to another, and the best funds in a single year might lag in another. ICON and RiverPark are two of the top-performing long/short funds in 2017, however they lagged behind their friends in 2020. In any case, they give a decent understanding into what long/short funds do.

1. ICON Long/Short Fund: The ICON Long/Short fund had a year-to-date performance of 25.96% as of Dec. 1, 2017. The fund's investable universe incorporates all equity securities traded in the U.S. market. It involves the S&P 1500 Index as its benchmark. The fund involves quantitative analysis to distinguish undervalued and overvalued securities in the investment universe. It then, at that point, takes long positions in stocks it accepts to be undervalued and short positions in stocks it accepts to be overvalued.
2. RiverPark Long/Short Opportunity Fund: The RiverPark Long/Short Opportunity Fund is another top-performing fund in the category. Year to date as of Dec. 1, 2017, the Fund had a return of 24.07%. The Fund utilizes a proprietary investment process for distinguishing undervalued and overvalued securities. It likewise has a transparent system for its portfolio holdings. The Fund invests in U.S. equities across all market capitalizations and may likewise invest in foreign equities. It looks to buy undervalued companies and take short positions on overvalued companies. It generally stands firm on 40 to 60 long situations and 40 to 75 short positions.

Features

• Long/short equity is commonly utilized by hedge funds, which frequently take a relative long predisposition — for example, a 130/30 strategy where long exposure is 130% of AUM and 30% is short exposure.
• Long/short looks to expand traditional long-just investing by making the most of profit opportunities from securities recognized as both underestimated and over-valued.
• Long/short funds utilize an investment strategy that looks to take a long position in undervalued stocks while selling short overrated shares.