Bradack said this is especially important now because of the challenges facing the traditional 60/40 asset mix. He added that clients are using this strategy to reduce risk in the equity market as well as allocate some of their fixed income due to lower rates.
“When you can remove that volatility in the equity market, you can actually reduce the volatility in clients’ portfolios,” he said, noting that they buy long equities on one side of the portfolio and companies on the other. make it smaller.
“Yes, we can generate alpha,” he said. “We are using shorting as a hedging tool. Therefore, we short securities where there is a downside change and we bring it together in a portfolio of longs and shorts and through risk management, a portfolio for our clients where we can eliminate that market exposure completely.
However, their one cautionary note is to make sure you have risk management in place with this.
“First of all, you want to look at providers that have done this in the past that can manage the risk as you are building a long or short portfolio,” Bradack said. “Second, with this, is to really focus on a team process, and how it generates returns. You need to be with a provider that has a history of generating returns and that has a strong risk management process.”