WEST PALM BEACH, FL (www.hedgeco.net) – Short-selling strategy has been at the center of hedge fund�s investment philosophy, and it was the strategy that made hedge funds popular with investors.During the bear market of yesteryears, it was the short selling strategy that enabled hedge fund managers to achieve absolute returns for its investors even as the general equity markets faltered.Investors began flocking to hedge fund managers because of their ability to continue to post absolute returns for their investors regardless of market direction.
Some analysts and investors are now wondering about the future for short selling strategy. 2003 ended as the worst year for the strategy. Many long only portfolios did relatively well in 2003, and it appears that many investors are now favoring long only portfolios.
Short-selling strategy involves taking short positions in companies and derivative products a manager believes that it�s price is overvalued. Some companies experiencing bad news or negative publicity may also suffer price declines in their stock; managers applying short-selling strategies may short such securities. If the managers� analysis holds true and the security declines, the short-seller benefits from the appreciation in their portfolios.
According to a report by Morgan Stanley strategist Byron Wien, judging from the growth of hedge funds, the total number of shorting activities should have been three times the number seen today in the markets. According to Wien, many hedge funds maintain long positions in their portfolios.
One must however note that hedge fund managers use short-selling strategies when market conditions warrant such strategy. Hedge fund managers need not be criticized for not applying a strategy if such strategy may not achieve positive returns. Hedge funds differ from long-only mutual funds by their ability to adjust to new market realities, by changing exposures to achieve positive results. This freedom and quick response potentials has enabled hedge fund managers to achieve positive returns or at least prevent huge portfolio losses, when market conditions are difficult as now. Short-selling strategy will be applied again when the market cycle turns once more. For now, it appears the bulls are in control.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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