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Article: Hedge funds can reduce risk in a portfolio: Short selling can help a hedge fund to perform well in bear markets. (Hedge Funds).
- Article from:
- Money Digest
- Article date:
- April 1, 2002
- Author:
CopyrightCOPYRIGHT 2002 Money Digest. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Great inventions change the world. Think of the printing press, the microchip and the wheel. Now, for the investor, a new industry is emerging called hedge funds or alternative strategy funds.
Hedge fund managers will purchase a basket of stocks that are considered relatively cheap. They hold long positions while simultaneously short selling a basket of stocks that are relatively expensive. This is called short positioning. The main difference between these strategies is the degree to which the portfolios are hedged. Despite its somewhat speculative reputation, short selling in the context of a hedge fund strategy actually results in a lower portfolio risk.
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