The following research paper was selected for presentation in the Due Diligence Forum program at PortfolioConstruction Conference 2008.

Category
Subcategory

Taking Stock (Australian Equities)
Long-short

Due Diligence Forum speaker

Vasant Khilnani
Senior Portfolio Manager
Perpetual Investments

Due Diligence Forum summary

Market sentiment has changed. Advisers are reassessing how to maximise client returns and improve portfolio efficiency in a lower return environment. An active equity manager needs two skills to outperform: the ability to forecast stock returns and the ability to translate these into portfolio weights. Of the typical constraints imposed on a portfolio, long only constraints create the most inefficiency. In a bull market, these have not drawn much attention but as market returns revert to more normal levels, the need to extract as much alpha from a manager will become more important. Shorting strategies can be a very efficient tool in improving the risk/return characteristics of portfolios.

This presentation and underlying research paper discuss how advisers can improve portfolio efficiency through the use of long/short funds.