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Long / short equity

Long / short equity is becoming increasingly popular as a hedge fund strategy.

Long / short equity is becoming increasingly popular as a hedge fund strategy. To go long in an equity, the manager buys, anticipating a price rise. To go short, he identifies a sector and a stock he reckons is due a fall (for example, UK retail). He borrows shares from a major holder like a pension fund, and then sells them in the market. The money he gets for them is put on deposit and earns interest for the fund.

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If all goes well, the stock falls and he buys it back at a lower price (if the stock ends up rising, he can lose a lot of money trying to buy it back). The original stock is then returned to the lender plus a borrowing fee.

See Tim Bennett's video tutorial: Why a short-selling ban won't work.

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