Long Short Equity PF- does is make sense..? how to go about building Long Short PF

Investing Strategies
1

Hi All,

I have been interested in Long-short equity funds, but unfortunately in India only AIF are available for Long Short, which have larger ticket size to start with.

Many well known investors like Sameer Arora and Amit Jain also run their Long Short funds, but apparently not open for other investors.

The way i understand below are the main benefits of Long Short PF:

  • One can have higher overall exposure to equity, for ex: currently i have 50% exposure to equity rest is on debt side, with long short PF i can increase equity allocation to 60-70% without bearing additional risk for long only PF.
  • Risk reduction and having a somewhat hedged PF, as all the stocks bought in cash are long only, so balancing PF with some shorts gives overall market neutral PF.
  • Helps to stay in market, irrespective of prevailing market scenario: as you have the flexibility to play around the weightage of long & short as per the market conditions.

To start with i have 5% short Position on Auto sector & 5% Long on telecom sector, as i think both sectors are switching role for long term, Telecom worst seems to have happened and i think situation & news flow to improve going forward and Auto’s i think best is behind at least for 2-3 years prospective.

So i am curious to know if any members on this forums are maintaining long short PF.

Appreciate members views on below:

  • Drawbacks/problems and risk with long short PF.
  • How much %age of PF should be on short side considering the leverage (as shorts are available only in leveraged instruments)
  • Best way to short stocks, options or futures?
  • Kindly share Experience of maintaining long short PF.
2

Gagandeep,

I maintain a long short portfolio using futures (generally 3 months), with very carefully identified targets - its a tough life with medium sized returns, but in my opinion, the risk profile of the portfolio needs to be managed very carefully.

Current long shorts
Long: LTFH (have been long for a month now); Kotak; HDFC
Short: IDFC First; Yes Bank

I feel the long-short % of the portfolio should be managed based on the direction of the portfolio between 60% to 120% short;

Issues i find are:
Market is often momentum driven in one of the two directions - you have to plan your exits accordingly;

Lets say tomorrow i decide to exit my L&TFH position given it has run up 40% recently, i will either have to chose to reduce my IDFC short position (in a 8% loss); or replace the long with another long with a stock that i find is not high beta to downside (e.g. GAIL, HDFC in my opinion)

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