Dear Mr. Market:

You are made up of so many pieces and not all move in the same direction on each day. Some stocks can rise in bear markets and some get clobbered in bull markets. That being said, we have a special treat for you today: The following interview was granted to My Portfolio Guide, LLC from management of the Long Short Opportunity Fund (LSOFX).

My Portfolio Guide, LLC (MPG): First off…thank you for the opportunity to meet and learn more about your investing strategies. Our first question is perhaps best intended to simply set the table for our clients and readers of our newsletter:

Briefly explain why investors in typical advisory relationships should even consider using a hedge fund or alternative strategy as part of their portfolio allocation?

Long Short Advisors (LS): The simple answer is to provide downside protection in an increasingly volatile world where equity markets are near all-time highs and bond yields remain near all-time lows. A typical investor has their money allocated to a traditional blend of 60% long-only equities and 40% long-only short bonds, and has generated a fantastic high single digit return from this allocation over the past thirty years. Unfortunately for these investors, the current state of the bond market dictates that these returns are not repeatable over the next decade.

We believe the bond allocation of a traditional 60/40 blend could tread water at best given the current trajectory of bond yields.

Long-term equity volatility is unlikely to change, making a larger allocation to stocks similarly imprudent, especially at today’s record highs.

Thus, investors need to diversify into alternative strategies that have the ability to benefit not only from continued overall market strength, but also potential market weakness.

MPG: Of all the hedging and alternative investment strategies out there and now available to mainstream investors, what are some of the primary reasons to consider a “long/short” type approach? Continue reading →