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Long/short equity: Seek equity-like returns with potentially lower volatility

Value of an initial $1,000 investment

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. The total return of an investment is only one measure of performance. Performance should never be the sole consideration when making an investment decision. There is no guarantee that any investment will achieve its objectives, generate profits or avoid losses. The referenced indices are shown for general market comparisons and are not meant to represent any particular Fund. An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the performance data presented. US stocks represented by the S&P 500 Total Return Index; Long/short equity represented by the HFRI Equity Hedge (Total) Index. Bull markets: 01/90-08/00, 10/02-09/07, 03/09-present; tech wreck: 09/00-09/02; credit crisis: 10/07-02/09. Source: Altegris.

Long/short equity managers use both long and short stock positions as they seek to generate equity-like returns with potential lower volatility.

Long/short equity vs. traditional asset classes

The charts below show how long/short equity historically stacks up against traditional asset classes.

Calendar Year Performance: Long/short Equity vs US Stocks

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Long/short equity is represented by the HFRI Equity Hedge (Total) Index. See index descriptions below.

Performance Statistics:
Long/short Equity vs. US Stocks

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Long/short equity is represented by the HFRI Equity Hedge (Total) Index. See index descriptions below.

Annualized 10-, 5-, 3- and 1-Year Returns

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Long/short equity is represented by the HFRI Equity Hedge (Total) Index. See index descriptions below.

Standard Deviation*

*Standard deviation is a statistical measure of how consistent returns are over time; a lower standard deviation indicates historically less volatility.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Long/short equity represented by the HFRI Equity Hedge (Total) Index. See index descriptions below.

Long/short Equity Correlation*

*Correlation is a statistical measure of how two securities move in relation to each other.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Long/short equity represented by the HFRI Equity Hedge (Total) Index. See index descriptions below.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. The referenced indices are shown for general market comparisons and are not meant to represent any particular Fund. An investor cannot invest directly in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the performance data presented. US Stocks represented by S&P 500 Total Return Index; US Bonds represented by Barclays Capital US Aggregate Bond Index; International Stocks represented by MSCI EAFE Index; Commodities represented by S&P GSCI Total Return Index; Long/short equity represented by the HFRI Equity Hedge (Total) Index. Source: Altegris.

A different view of equity diversification

Long/short equity managers seek to produce equity-like returns without the typically higher volatility associated with long-only equity strategies. Employing a sustainable long/short equity strategy requires successful stock selection (both long and short) and adjusting net market exposure up or down as appropriate to market conditions.

Long/short equity managers often focus their investment philosophy by sector, style or geographic region, though some managers are generalists across all equities. Investment decisions are usually determined by fundamental, research-driven analysis. Of course, there is no guarantee that any investment will achieve its objectives, generate profits or avoid losses.

Essential criteria for successful long/short equity strategies:

  • Stock selection: ability to pick long and short stock positions is a core element to generate alpha
  • Market exposure: ability to adjust net exposure to ever-changing market conditions

See the Glossary for term definitions.

Exposure: the proportion of money invested in a particular type of security and/or market sector. Usually expressed as a percentage of total portfolio holdings.

Long: buying an asset/security that gives partial ownership to the buyer of the position. Long positions profit from an increase in price.

Short: selling an asset/security that may have been borrowed from a third party with the intention of buying back at a later date. Short positions profit from a decline in price. If a short position increases in price, the potential loss on an uncovered short is unlimited.

Strong historical returns with less volatility










Long/short equity strategies can invest both long and short across multiple equity markets around the world.

Long/short equity has historically delivered strong risk-adjusted returns with typically lower volatility than long-only equity strategies. The number of trading philosophies managers can employ across a wide range of sectors and global equity markets may potentially diversify a portfolio by offering complementary characteristics to a traditional long-only equity allocation.

  • Historical performance: Long/short equity strategies have delivered an impressive historical total return over the past 20 years. It has shown the potential to deliver strong total returns across a broad array of market conditions over a full market cycle. Of course, past performance is not indicative of future results.
  • Lower historical volatility: Long/short equity strategies' historically stronger returns have been delivered with lower volatility, when compared to long-only strategies.
  • Potential downside protection across various market conditions: Long/short equity has historically demonstrated downside protection in various market conditions, especially during adverse or falling equity market periods.
  • Investment flexibility: Long/short equity managers use various approaches to make stock selections, often focused on a specific sector, geographic region or style. The array of philosophies used by managers gives them the opportunity to potentially profit from both positive and negative developments in multiple markets simultaneously.
    • Sector: utilize a broad-based or concentrated approach to gain exposure to sectors such as energy, technology, financial, consumer, health care, etc.
    • Style: flexibility to use an array of investment techniques that may include value and growth.
    • Geographic region: ability to gain exposure across a variety of global equity markets.

We help you understand the advantages of long/short equity strategies

As part of the Altegris Academy, Altegris brings you a variety of resource materials that will help you better understand the potential advantages of the long/short equity strategy.