Question #8
Reading: Reading 34 Hedge Fund Strategies
PDF File: Reading 34 Hedge Fund Strategies.pdf
Page: 3
Status: Unattempted
Correct Answer: A
Question
Which general statement describing key differences between long/short equity (L/S) strategies and equity market neutral (EMN) is most accurate?
Answer Choices:
A. L/S strategies typically have more concentrated portfolios than EMN strategies, use lower leverage than EMN, and target unlevered returns that are higher than EMN
B. EMN strategies rely on selecting securities with sufficient liquidity, have longer security selection time horizons, and usually have greater leverage than L/S equity strategies
C. EMN strategies are less diversified than L/S strategies but typically use greater amounts of financial leverage to generate returns than L/S strategies
Explanation
L/S strategies are typically more fundamental in nature as they select specific securities to
go long and short. L/S funds attempt to earn alpha on both sides of the trade and target a
lower beta while achieving returns consistent with long-only equities. EMN strategies has
systematic approaches in selecting long and short candidates, trade more frequently, and
are close to market neutral. In order to deliver higher returns, these funds use substantial
leverage.