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More Than Meets the Eye With Long-Short Equity Betas

Beta ranges reveal a dizzying array of approaches.

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When I was a kid, any time my mother took my brother and me to Baskin-Robbins for ice cream, I was under strict orders: "Chocolate, vanilla, or strawberry!" That's because if not limited to those three choices, I would find myself overwhelmed by the plentitude of the 31 flavors and unable to make any decision at all. (What my family considered my chronic indecisiveness I now recognize as a function of the far more sophisticated-sounding "paradox of choice.")

Investors considering a long-short equity strategy face a similar quandary. By Morningstar's latest count, there are nearly 150 long-short equity funds. While the label long-short equity indicates a fairly straightforward strategy--a portfolio that combines long positions in stocks with a (usually) smaller sleeve of short positions designed to take advantage of stocks expected to fall in price--in fact there are a dizzying array of flavors on the long-short equity menu board.

Josh Charlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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