Should Long/Short Equity Be Considered An Alternative Asset Class?

Hedge funds are considered alternatives even if they themselves invest in traditional assets like stocks and bonds because, ideally, they aren’t just tracking an index and the strategies produce their own risk/return profiles. But long/short equity strategies as a whole do share in bull markets, while trying to mitigate losses during a bear market, and Neuberger Berman analysts Juliana Hadas and Andrea Pompili argue that investors should treat them as part of their portfolio’s equity allocation.

“Since long/short hedge funds invest in equities, and since their correlations to equity markets are around 0.9, investors may wish to consider long/short hedge funds as implementation vehicles for their equity exposure—in our view, an attractive complement to long-only strategies—rather than as part...