By Jeff Brown
“If one were to invest in a long-short fund, there are many considerations to take into account,” says Daniel Lugasi, portfolio manager at VL Capital Management. “First, and foremost, it is crucial to examine the firm’s performance track record. A five-year track record for a strategy is the bare minimum that should be accepted. A longer track record, particularly one that stretches back prior to the Great Recession is best, as this was the ultimate stress-test for most long-short funds.”
Lugasi is not a long-short fan, however, noting that short positions can have very large losses if the stocks continue going up instead of falling. That constantly enlarges the gap between the sell price and the cost of buying replacement shares. Losses on long positions are limited to what was spent on the shares.