Hedge Fund Definitions

This page is devoted to covering definitions of hedge fund strategies.

Equity Hedge Funds

Equity hedge funds include strategies that primarily target positions in common stock.

Equity Long Bias

This strategy is one that is familiar to most people. While the strategy may invest in short positions, the weighting is usually heavily weighted toward long exposure. Funds targeting this strategy typically endeavor to outperform benchmarks by investing in a narrow group of stocks. Mangers employing a equity long bias will accept greater volatility in exchange for higher than average gains. Put another way, classic diversification is eschewed in an effort to outperform market benchmarks. Managers of equity long bias may also implement a market timing strategy, using technical analysis, to further boost gains.

The stock selection typically relies fundamental criteria but also may, though not as often, use technical analysis. Commonly, managers will use a proprietary selection process in building a portfolio. Usually, though not always, equity long bias strategies utilize a low level of leverage — two to one, or less.

Equity long bias strategies, not surprisingly, usually correlate to stock index returns.