Long-Short Category of Liquid Alternatives Shows Rapid Growth

By admin
In May 8, 2014
On Blog

A recent Morningstar.com article,  “A Red Giant Engulfs the Long-Short Category” reports upon the growth in Long-Short Equity Funds.  ETF-Model Solutions employs Long-Short funds to fulfill our hedge strategies portion within both our Hedge Fund of Funds model and the Risk-Managed category in our Endowment Multi-Asset ETF Allocation Collective Investment Fund.

A few takeaways/excerpts:

  • “Organic Growth in Long-Short space was 81% in 2013 to $21 billion.”
  • “22 new funds were launched in 2013, growing the number of funds in the space to 110.”
  • “The growth in the space, especially the tremendous AUM gain of the Mainstay Marketfield Fund (MFADX) has spurred other hedge managers who previously shunned the mutual fund structure and retail market have revised their opinions.”
  •  “Long-short funds, whose managers take traditional long positions in stocks while also betting against specific stocks or hedging the stock market as a whole, offer the prospect of participation in up markets alongside increased protection in down markets. Interest in such strategies flourished after the Great Recession, and the subsequent bull market in stocks now has many investors looking to guard against a potential correction or even longer-term reversion in the markets.”
  •  “Rarely will a long-short fund garner full participation in an up market; by their nature, these funds are hedging out exposure to the stock market, limiting both upside and downside. In 2013, the long-short category averaged a 14.6% return, slightly less than half the S&P 500’s 32% return and in line with the category’s average beta (a measure of sensitivity to the benchmark) of about 0.5. Similarly, in 2008, while the S&P 500 plummeted 37%, the long-short category as a whole fell only 15%.”

The article was written by Josh Charlson, Director of Alternative Funds Research at Morningstar.  The entire article can be viewed at: http://bit.ly/1iYa3Bk.