Two good reasons to consider going short in Aussie equities
The Australian market is uniquely concentrated. The top end of the index is dominated by a few big companies, and that’s supported by a long tail of small positions. This presents a difficult opportunity for an investor to express a negative view on one of those small companies, but also makes betting against the bigger companies a risk.
Paradice Investment Management has traditionally been known as a long-only manager, but David Moberley seeks to combat this concentration by adding short selling to the toolbox. He reveals two good reasons to consider going short in Aussie equities:
- Expressing a negative view can create a meaningful difference between the portfolio and the index. If a stock or sector only makes up 0.25% of the index, reducing a position to zero makes little difference on a relative basis.
- Many Aussie large cap funds look very similar due to the way the index is composed. A long/short fund is able to depart further from the index, allowing investors to achieve genuine diversification at a portfolio construction level.
In this video, David shares his ‘four bucket’ strategy to identifying a company to short, and details the pros and cons of this investment approach.
Take advantage of market dislocations
The Paradice Long Short Australian Equities fund provides investors with a style-neutral, long/short, active extension exposure to Australian equities.
For more investing insights from David Moberley, please follow him here.
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This material has been prepared by Paradice Investment Management Pty Ltd (ABN 64 090 148 619, AFSL No. 224158) (“Paradice”). This material is not intended to constitute advertising or advice (including legal, tax or investment advice) of any kind. It is of a general nature only and has been prepared on the understanding that Paradice is not providing professional advice on a particular matter. The information and opinions contained herein are not necessarily all-inclusive and, as such, no representation or warranty, express or implied, is made as to the accuracy, completeness or reasonableness of any assumption contained herein and no responsibility arising for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Paradice, its officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Before relying on the material or making any decision in relation to the funds, you should consider your needs and objectives, consult with a licensed financial adviser and obtain a copy of the relevant product disclosure statement, which is available by visiting www.paradice.com. Past performance is not a reliable indicator of future performance. The value of an investment in the funds may rise or fall. Returns are not guaranteed by any person.
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