Brandon Smith, Portfolio Analyst for Boston Partners, joined Julie Cooling, Founder and CEO of RIA Channel, at the GTE Wealth Forum to discuss generating alpha through long/short strategies.
With market concentration and equity valuations near all time highs, Smith notes that many advisors are looking for differentiated sources of alpha. He points to Boston Partners’ long/short equity strategy as a potential solution. The strategy generates alpha through security selections on both the long and short sides of the portfolio. Smith adds when the firm shorts a company, it expects stock to decline in price; shorts are not intended as just hedges or offsets to long positions.
Boston Partners’ flagship U.S. long/short equity strategy has a unique microcap opportunity set. Smith explains that capacity is intentionally limited to ensure the strategy establishes meaningful positions, long and short, in companies below $1 billion in market cap. The firm also has a global long/short strategy, which he describes as flexible since it can go up and down the capitalization spectrum across different geographies.
In regard to allocation, Smith finds that advisors tend to use the long/short strategy as a replacement for a portion of their equity allocation or within their alternative allocations. If used as a core replacement, typically 5% to 10% is allocated to dampen volatility and offer downside protection.
While acknowledging the risks that come with shorting, Smith notes that Boston Partners mitigates risk through diversification. The firm holds more than 100 short positions in its portfolio with the average short position typically accounting for less than half a percent.
Boston Partners is a global asset management firm with more than $125 billion in assets under management.
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