Though the overall growth prospects for the economy and capital
markets remain high, the last 20 months have taught that stock market investing
can go through frequent ups and downs with sharp moves at the sector and the
stock level.
Here, the aggregate longs
(the stocks that are bought) and aggregate shorts (the stocks that are sold
through futures and options, without owning them) are roughly equal in size.
These are designed to exhibit nearly one-third of index volatility. Such a
portfolio does not participate in market vagaries, and purely generates returns
from active stock/sector selection and out-performance of long book over the
short book, he added.
List
of popular SEBI-registered long-short funds in CAT III
Broadly, there are three risks associated with all types of long-short
funds:
a) A trending market will favor
such a strategy while range-bound or choppy markets could hurt returns.
b) Long-short funds with long
bias are funds where longs are more than the shorts. These are prone to market
risks where any weakness in the market hurts returns.
c) Here, market direction
risk (or systemic risk) is lowest, but still, the fund remains exposed to the
stock selection risk, which is also the main driving factor for the fund.
Additionally, the level of
concentration in the fund increases the risks and the volatility for all the
above-mentioned long-short AIFs. The knack of the fund manager and the
experience of the fund management team influence the performance of long-short
funds. All these factors are responsible for the divergence in the performance
across various types of long-short funds.
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