Long/short equity strategies appear to offer an alternative investment opportunity for equity investors versus long-only investing, a paper by Credit Suisse says.
Given the current market environment and persistent uncertainty faced by investors, Credit Suisse believes that L/S equity funds can offer a better risk/return opportunity versus long-only equity funds, as well as potentially improved downside protection.
While investing in hedge funds does pose some inherent risks, long/short equity strategies can provide broad equity exposure with additional return opportunities, making them an important core holding, the paper states..
L/S equity strategies, as represented by the Dow Jones Credit Suisse Long/Short Equity Hedge Fund Index, have generally outperformed long-only equity markets, as represented by the MSCI World Index, on both an absolute and risk-adjusted basis over certain periods of time.
Since 1994, L/S equity strategies have posted almost twice the gains of long-only equity markets, with approximately two thirds of the volatility.
L/S equity strategies can provide some downside protection: L/S equity strategies experienced less than half the declines of the long-only equity markets between November 2007 and February 2009.
