Overview
Effective short selling enhances an investment portfolio’s risk-adjusted returns over time. All else equal, short positions lower market exposure when incorporated into a broader portfolio. Accordingly, the long/short approach generally reduces volatility and improves capital preservation over a full market cycle.
The use of shorts in a portfolio typically gives long/short managers a competitive advantage over long-only investors, who are more dependent on rising markets to generate returns. While the benefits can be significant, only select managers are equipped to effectively implement a long/short investment strategy. When properly executed, this strategy can lead to superior results over a full market cycle.
If you’d like to learn more about how to analyze the process, benefits and risks of short selling, please read on.