Equity Long Short
Our take on the classic hedge fund strategy with a market neutral portfolio
Strategy Description
Equity Long Short is one of the most commonly used strategies amongst hedge funds for decades and normally only available to qualified investors with more than $500,000 to invest. The reason why the investing elite love this strategy is because it provides the ability to generate returns in down markets, not just bull markets like most people's portfolios are leveraged too.
With our long-short strategy we carry a portfolio of 10 stocks long equal to 75% of the account whilst simultaneously holding a polar opposite portfolio of 10 stocks short equal to 75% of the account (at time of opening) giving us a market neutral portfolio so the returns have very little correlation to the overall market and can deliver good returns throughout many market environments, both bull, bear and sideways environments.
Strategy Objective
Benchmark: S&P 500 Index
To outperform the benchmark on a yearly basis and significantly so in the long term with a similar level of volatility and a low level of correlation.
Investable Universe
For long positions, a minimum market capitalization of $500 million dollars.
For short positions, a minimum market capitalization of $5 billion dollars.
For all positions, a minimum average daily traded volume value of $5 million dollars.
Investment Approach
This strategy is a systematic/discretionary hybrid approach. All position sizing and # of holdings is systematic, along with criteria for which stocks we buy long and sell short. We use discretion in choosing which stock to open a position out of a list of candidates that meet our quantitative criteria. This is where we perform our qualitative research into the underlying business and valuation.
The primary driving factors in our stock selection for this strategy are valuation, quality and technical chart patterns on weekly and monthly timeframes. We buy undervalued quality businesses that show signs of a technical bottom and/or early-stage uptrend. We do the exact opposite for our short positions, where we seek to short sell overvalued, questionable quality businesses that show signs of a technical top and/or early-stage downtrend. Due to the fact stocks can rise more than they can fall, we have loose stop-loss levels on all short positions, typically 30% or more above our entry points.
We have our own unique discounted cash flow valuation model that also represents our target price to exit our positions. This is a dynamic value that updates every day. However, we may exit a position early if the business characteristics change from our initial thesis and/or we have a much better position to add to the portfolio.
Position Sizing
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The model portfolio uses 7.5% of current account value when opening all positions
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There are always 10 positions open long and 10 positions open short for 20 total positions
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The total leverage of the portfolio is 150% (7.5% x 10 long and short positions)
Trade Frequency
Typically, positions are held open for several months to several years. Low portfolio turnover is a positive feature of the strategy that keeps trading costs to a minimum to enhance returns.
Key Benefits
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Hedge against possible multi-year bear/sideways markets with a market neutral portfolio
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Generate unique returns that have a very low correlation to the general market
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Diversify your long-only equity exposure with ability to generate returns in bear markets
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Very low level of maintenance required with an average of 20 minutes of trading per month
Strategy Performance
Below is the current performance of the Equity Long Short strategy of a hypothetical $50,000 portfolio following this strategy versus the S&P 500 Index as shown on the chart. The real time performance is tracked by independent 3rd party platform, Collective2 (C2) which includes all brokerage and our subscription fees. All of our trades are entered in real time into the C2 platform and can be publicly verified by anybody.
Cost to Follow
The cost to follow the Equity Long Short is $60/month to receive all trade alerts to your email so you can manually enter the trades into your own trading account.
How to Follow the Equity Long Short Strategy
Equity Long Short is listed on Collective2, a copy trading platform that allows strategy developers to offer strategies for subscribers to follow and copy in real time. Think of Collective2 like an online hedge fund marketplace that anybody can join to find trading strategies to copy.
Follow the steps below to subscribe to the Equity Long Short strategy.
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Visit the Equity Long Short strategy page on Collective2 here https://collective2.com/details/142739519 and signup for $60/month
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Collective2 will now email you all changes to our portfolio in real time and you will be able to see our current open positions. Some months there may be no trades, some other months there may be several. You can enter the trades into your account.
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If you wish to have the trades automatically placed in your Interactive Brokers account then you have the option to sign up for an Auto-trade plan for an additional $49/month with Collective2 who will then automatically place all our trades in your IB account in real time.
After you sign up to our strategy on Collective2, you'll also be added to our members email list and immediately receive details on what current positions our portfolio holds. We also send out a monthly performance report to our members giving ongoing commentary on the markets and how our portfolio is performing so you'll always be aware of what is happening.
If you have any other questions you're welcome to email us at support@clickcapital.io