CFA Level I · CFA Level I Exam · Hedge Funds
Compared with a fundamental long/short equity fund, an equity market neutral fund that uses quantitative models is most likely to:
A quantitative equity market neutral fund most likely holds many positions, offsetting longs and shorts, to remove market exposure and earn returns from stock selection. Large net short bets belong to short bias funds, and concentrated conviction portfolios are more typical of fundamental long/short managers.
- Ahold a large net short position to profit from falling markets
- Brely on a concentrated portfolio of high-conviction positions
- Chold many positions to isolate stock selection from market movementsCorrect
Explanation
Market neutral funds aim for near-zero beta and often diversify across many long and short positions so that returns come from relative security mispricing. A net short position describes a short bias fund. Concentrated high-conviction books are more typical of fundamental managers.
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