Shorting indexes or sectors, generally by using ETFs
These funds want to increase returns by identifying the market’s least attractive stocks and betting against them Alan Salzbank of the Gargoyle Group warns that “the character of the short positions varies from fund to fund, and is not necessarily designed to hedge market exposure as the category title would suggest.” Based on our discussions, we think there are three distinct roles that short books play and three ways those strategies get reflected in the fund. What are the managers attempting to do with their short book and how are they doing it? The RiverNorth folks, and most of the others, agree that this should be “the first and perhaps most important” criterion. Start with the role of the short portfolio.After two weeks of conversation, though, useful commonalities began to emerge. In extended conversations with managers and executives representing a half dozen long/short funds, it’s become clear that investors need to give up entirely on this simple category if they want to make meaningful comparisons and choices.Įach of the folks we spoke to have their own preferred way of organizing these sorts of “alternative investment” funds. It contains funds that have only superficial – not essential – similarities with each other. Nonetheless, this particular category is seriously misleading.
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Feel free to judge them against each other.” We sympathize with the analysts’ need to organize funds. When Morningstar groups 83 funds together in the category “long/short equity,” they’re telling us “hey, all of these things have essential similarities. The renowned linguist George Lakoff writes, “there is nothing more basic than categorization to our thought, perception, action and speech.”ĭo categories automatically make sense? Try this one out: Dyirbal, an Australian aboriginal language, has a category balan which contains women, fire, dangerous things, non-threatening birds and platypuses. The fact that the assignment is random, silly and unfair doesn’t stop us from making judgments anyway. If we assign a piece of fruit (or a hard-boiled egg) to the category “upscale dessert,” we start judging it based on how upscale-dessert-y it seems. As soon as we announce a category, we start judging things in the category based on how well they conform to our expectations of the category. Using the phrase validates the existence of a category, that is, a group of things where we perceive shared characteristics. Here’s the Observer’s position: Talking about “long/short funds” is dangerous and delusional because it leads you to believe that there are such things.
Not nearly.) Seeking Alpha offers up the “best and less long/short funds 2013.” News plunk nearly a hundred funds into a box with that label. Bloomberg promises “a comprehensive list of long/short funds worldwide.” Morningstar, Lipper and U.S. Google chronicles 273,000 pages that use the phrase. Welcome to summer, a time of year when heat records are rather more common than market records.Įverybody’s talking about long/short funds.
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