Hedge fund strategy that stays afloat - Data Explorers
12 October 2011 London
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"Equity market neutral and quant" is the hedge fund strategy staying afloat, says Data Explorers.
"Having as many shorts as longs in your portfolio is not a prevalent strategy but a good one at times like this. To a certain extent it is a hedge fund in its purest form," the data provider writes.
Using securities lending flow data, the team modeled long only and short only versions - the long only strategy performed best of all three.
The long portfolio outperformed the S&P 500 consistently over the year with a cumulative return of 35 per cent compared to 7.4 per cent for the latter. The short portfolio outperformed the index, closing up 14 per cent, over the last turbulent month.
"Combining the two portfolios to create a market neutral long/short strategy seems like a sensible way to go. This strategy is based on shorting the short portfolio and going long the shares in the long portfolio," Data Explorers writes.
"Having as many shorts as longs in your portfolio is not a prevalent strategy but a good one at times like this. To a certain extent it is a hedge fund in its purest form," the data provider writes.
Using securities lending flow data, the team modeled long only and short only versions - the long only strategy performed best of all three.
The long portfolio outperformed the S&P 500 consistently over the year with a cumulative return of 35 per cent compared to 7.4 per cent for the latter. The short portfolio outperformed the index, closing up 14 per cent, over the last turbulent month.
"Combining the two portfolios to create a market neutral long/short strategy seems like a sensible way to go. This strategy is based on shorting the short portfolio and going long the shares in the long portfolio," Data Explorers writes.
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