NEWS

Risk of loss limit

Andreas Kerschbaumer (Die Presse)

The fact that the stock market always comes back to break-ins has become something of seems among investors. The present a hedge fund strategy is especially attractive: long / short equity.

More than half of global money flows into hedge funds have flowed 2010 in long / short equity fund. Already one third of the 1.7 trillion dollars that are invested in hedge funds, are in such a fund. In this strategy, we benefit not only from rising markets, but also reduces losses in wide-area stock market slumps.

The strategy is based on stock couples. A fund buys about (undervalued) shares of small caps and large caps bets against the same industry. Rise, the markets go, this strategy very well, because rise in this environment, more especially small cap stocks. If the prices fall across the board, however, the short positions increase in value. A look at the price movements during the 2007/08 financial crisis shows that the funds have managed to keep the losses to some extent limited. The HFRI Equity Hedge (Total) Index, which tracks the performance of long / short equity funds went to 31 percent down. By comparison, the MSCI World fell from 60 percent.

Many investors have been disappointed yet. Because they had promised many fund managers in advance, to write in burglaries profits. "The short portfolio is used but usually only as a hedge and not to generate returns," said Oliver Prock, a specialist in alternative investments and CEO of Salus Alpha Capital.