ISBN: 0-03-031529-8
NEWSWIRE - November 5, 2001
Topic: Equity Portfolio Management
Source: "Hedging Their Bets: Some Funds Try Long-Short Approach," by Karen Damato and Tom Lauricella, The Wall Street Journal, Monday, November 5, 2001, page R1.
Synopsis: Since March 2000, the S&P 500 has fallen by 28% and the NASDAQ Composite by 64%. The economic forecast for the upcoming year, 2002, is far from optimistic. So, it is not surprising that there is interest in mutual funds that use short selling as a significant component in their portfolio management strategy. This article provides a brief review of the concept of short selling and then details the approach taken by about a dozen mutual funds in employing a long-short strategy. The long-short approach can be used to enhance returns or reduce losses in a down market. It can also be used to hedge the portfolio against significant moves in the broader stock market while employing an active security selection strategy.
Discussion Questions:
- What is short selling? Explain the basic concept behind a long-short portfolio.
- What is a hedge fund? Why are long-short strategies commonly employed by hedge funds?
- The article discusses returns from many mutual funds employing long-short strategies. If the approach can be used to hedge exposure to the market and other sources of risk, why is the performance of these funds so disparate?
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