CONVERSATIONS WITH YOUR CLIENTS
INVESTMENT INSIGHT
LONG/SHORT STRATEGIES
Impact on Market Risk
INCLUDING SHORT POSITIONS CAN REDUCE NET MARKET EXPOSURE WHILE EXPANDING OPPORTUNITIES FOR EXCESS RETURNS
Illustrative Example of Net Market Exposure in a Long/Short Strategy
110% Long Positions
1
- 43%
Traditional Opportunity Set
3
20% Net Market Exposure
2
Expanded Opportunity Set
90% Short Positions
For illustrative purposes only.
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CONVERSATIONS WITH YOUR CLIENTS
INVESTMENT INSIGHT
LONG/SHORT STRATEGIES
Should I invest in long/short strategies?
In today’s volatile market environment, a traditional long-only strategy — where the goal is to buy low and sell high — may not provide you with the
returns or diversification you need. You might be able to enhance your portfolio by adding alternative strategies such as long/short strategies.
Impact on market risk
Impact on returns
Because short positions – where you sell the security first, hoping to buy it
back at a lower price – benefit from market moves in the opposite direction of
those that benefit long positions, combining the two of them can be used to
help reduce your overall market risk.
In addition to reducing risk, a long/short strategy may help enhance your
portfolio’s returns.
The chart below illustrates the net market exposure of a hypothetical
long/short strategy.
The chart below uses a hypothetical $10,000 investment to compare the
returns of stocks, bonds and a long/short strategy over the 15-year period from
2000 to 2014.
BACK OF CHART
FRONT OF CHART
As the chart shows:
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2
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The “long” side of a long/short strategy is invested in the traditional way –
you buy a security and later sell it. You make a profit when the security
increases in value
In the “short” side, you “borrow” a security and immediately sell it, hoping
its value will fall. Later, you buy the security back for a, hopefully, lower
price, close your position, and keep the difference between what you
received when you sold it and what you paid when you bought it back. You
profit when the security decreases in value.
By combining long and short strategies into one portfolio, you reduce your
net market exposure. This illustration shows a 20% net market exposure
— 90% short positions subtracted from 110% long positions — but the
amount of market exposure will vary by strategy and over time.
As the chart shows:
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A hypothetical $10,000 investment in bonds or long/short would have
grown close to $25,000 over 15 years.
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Since "short" portfolios may be more able to profit in a declining market,
long/short strategies may offer greater downside protection than
traditional "long-only" portfolios. This can help long/short strategies
perform better over time.
Points for professionals
u
Analyse the investment strategies of your clients' accounts.
u
Help them understand that long/short strategies may provide higher
total returns and better downside protection.
u
Suggest an appropriate investment strategy for their situation.
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CONVERSATIONS WITH YOUR CLIENTS
INVESTMENT INSIGHT
LONG/SHORT STRATEGIES
Impact on Returns
LONG/SHORT STRATEGIES MAY OFFER SMOOTHER RETURNS AND DOWNSIDE PROTECTION
Growth of a Hypothetical $10,000 Investment Over the Last 15 Years (2001–2015)
$30,000
5
20,000
4
10,000
0
12/00
12/05
12/10
12/15
Stocks
Bonds
Long/Short
Want to know more?
blackrock.com
Sources: BlackRock; Informa Investment Solutions. Past performance is no guarantee of future results. Investing in long/short strategies involves risk including loss or principal. Compared to long-only investing, the potential for volatility can be greater
for a long/short strategy given the additional long exposure along with the short exposure. Any loss on short positions may or may not be offset by investing short-sale proceeds in other investments. Stocks are represented by the S&P 500 Index.
Bonds are represented by the Barclays Credit Index. Long/Short is represented by the Dow Jones/Credit Suisse Long Short Equity Index. Index performance is shown for illustrative purposes only. It is not possible to invest directly in an index.
Issued in Australia by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL). This material provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you
need to consider whether this document is appropriate to your objectives, financial situation and needs. This document is not a securities recommendation. This document has not been prepared specifically for Australian investors. It may contain references to dollar amounts which are not Australian dollars. It
may contain financial information which is not prepared in accordance with Australian law or practices. BIMAL, its officers, employees and agents believe that the information in this material and the sources on which the information is based (which may be sourced from third parties) are correct as at the date
of this document. While every care has been taken in the preparation of this document, no warranty of accuracy or reliability is given and no responsibility for this information is accepted by BIMAL, its officers, employees or agents. Except where contrary to law, BIMAL excludes all liability for this information.
This information is intended solely for use by professional advisers in one on one discussions with clients and circulation must be restricted accordingly. BlackRock has not considered the suitability of investment against your individual needs and risk tolerance. To ensure that you understand whether
a financial product is suitable, please read the Simplified Prospectus or Key Investor Information Document when available and seek assistance from your professional adviser. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority).
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