Long-short money managers have been breathing a sigh of relief with the end to the Securities and Exchange Commission's ban on short sales of financial stocks. The three-week SEC ban on the short sale of some 1,000 financial stocks that ended Oct. 9 had wreaked havoc among money managers.
Long-short mutual funds, for example, typically deliver absolute returns independent of the performance of the overall stock market. They achieve that goal by shorting overvalued stocks and taking long positions in undervalued stocks. In theory, adding a market-neutral fund, such as a long-short fund, as a portfolio diversifier may deliver attractive results; market-neutral funds, including long-short funds, have low correlations to the stock market.