Discussion in 'Risk Management' started by digitalnomad, Jan 14, 2019.
What is considered a good average annual return on a long/short equity strategy?
How much leverage? For each $100,000 what would be a typical dollar amount of long and short?
Just standard 2:1 RegT. Equal dollar amount on both sides.
So for a $100,000 account, long just under $100,000, Short just under $100,000? (To avoid margin calls, you really can't exceed L$90K vs S$90K)
I'd say it is hard to find a hedge fund that does this that exceeds 5%/year.
Yep. Just under Rob. The 5% you mention is on par with my expectations, considering the 2:1 leverage. That said, I allocated 50k toward a scalable long/short equity strategy last year with a +4% gain, rebalancing monthly. Ran a comparison using portfolio margin showing me pretty close to 4:1 capability on average. Not too shabby I guess, but still always risk
When 1 year T-bills were well under 1%, there was no reference. Now that 1 year T-bills are around 2.70%, you have to add that to your expectation. 5% with a low risk strategy was great 3 years ago, but today you need a higher target, IMO. With a PMA, 1.5X to 2X both long and short would get you there but with more risk.
Benchmark for Long-Short market neutral is T-bill for unlevered fund.
The PMA at 2X Long/Short would have snagged 8%, considering a 10% S&P decline in same period. Just started playing with this last year.
Doesn’t fit my personality well, though it may be a viable approach. How much more of my own capital, and for how long would I need to sustain this, to attract some attention. It’s quite easy to manage actually.
Good to know. Thanks
I would say less than 5percent of (gross notional : long + abs(short).
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