The bottom line is that investors need to improve upon the return potential of an investment grade debt portfolio without taking on too much equity risk. Adding long/short equity while reducing both long-only equity and investment grade debt does just that. Over multiple market cycles (including two major crashes), long/short equity strategies have outperformed the 60/40 core on a risk-adjusted basis. In a market environment that portends low future returns, every basis point counts.
Clifford Stanton, CFA, is chief investment officer of 361 Capital and is responsible for managing the investment department, including oversight of strategy development, investment research and portfolio management. Stanton spoke on the topic of long/short strategies on September 19 at Financial Advisor’s 7th Annual Inside Alternatives conference in Denver.