CFA Level I · CFA Level I Exam · Hedge Funds
A hedge fund buys undervalued stocks and sells short overvalued stocks, and it keeps its net market exposure between 0% and 50% long, so it carries a modest long bias. This fund is best described as following which equity hedge fund strategy?
The fund follows a fundamental long/short equity strategy. It selects undervalued longs and overvalued shorts and keeps a modest net long exposure. Market neutral funds target roughly zero net exposure and short bias funds run a net short position, so neither fits.
- AEquity market neutral
- BShort bias
- CFundamental growth or value long/shortCorrect
Explanation
Long/short funds that use fundamental analysis to pick longs and shorts typically keep a net long bias. Market neutral funds aim for near-zero net exposure, and short bias funds hold a net short position. The described 0% to 50% net long exposure therefore does not fit those two.
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