Growing demand among investors for short-selling in their portfolios is not being satisfied because too many UK advisers do not fully understand the concept, according to Scottish Widows Investment Partnership (SWIP).
The firm says investors are coming to believe a ‘shorting’ constraint in portfolio management is preventing them from fully exploiting their ability to forecast stock returns.
Short-selling is a way to benefit from a decline in the price of a security. Proof of its potential occurred this year when shares in Northern Rock bank fell £10 in value between February and September. It has been estimated short-sellers made over £1bn during this period.
James Clunie, SWIP investment director, UK Equities, says: “It is encouraging to see consistently increasing interest and enthusiasm for short-selling among IFAs but we are also aware of the importance of education in the success of short-selling investment in the UK.
“Investors need to understand what short-selling incorporates, what the benefits are and what they can expect in terms of performance.
“The beauty of short-selling is that it enables a fund manager to fully exploit their ability to forecast security returns, thus more ‘informationally efficient’ portfolios can be created.”
SWIP manages a suite of three absolute return funds, launched in 2006, which can use derivatives to express a short view of a stock, bond and, in the case of the macro fund, a short view of a given asset class: the SWIP Absolute Return Bond fund, SWIP Absolute Return Macro fund and the SWIP Absolute Return UK Equity fund.
To help financial advisers understand the impact of short-selling, SWIP has produced an investor guide. Contact 0131 655 1933 for copies.
020 7034 2636
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