Shorting

Short selling describes the process of generating positive returns from a fall in the price of shares. Positive returns are generated by selling a share today on the expectation of buying it back at a lower price in the future. The benefits of short selling from an investor’s perspective are that it increases the breadth of investment opportunities, beyond what a long only investor would consider. This provides a larger opportunity set to generate alpha.

The WaveStone Dynamic Australian Equity Fund has the ability to short stocks. Shorting is not mandated however it does increase the opportunity set available for return enhancement. WaveStone restricts its modest short selling (max 10 stocks) largely to the top 100 companies for liquidity reasons with the investment typically having none or very few Superior Corporate DNA traits, industry headwinds and solvency concerns. Overly optimistic broker expectations are the icing on the cake as the valuation tests are applied and if found to be overvalued the stock is shorted.

Paper – An airbag for your equity strategy

This paper takes a closer look at long/short variable beta strategies – how they work, what they can offer investors and where to position them in your portfolio.

Case study – Blending a variable beta strategy with a long only fund

In this case study we examine the three key benefits of blending a long/short variable beta strategy – the WaveStone Dynamic Australian Equity Fund – with a traditional long only Australian equity strategy.