Short selling has been chronically underutilized by investors despite its potential to drive returns and reduce volatility
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Short selling has remained underutilized by many prospectus-based investors despite its potential to drive returns and reduce volatility. Perhaps due to misconceptions or lack of proper understanding of the strategy, many investors choose to ignore short selling, dismissing it as something that is not for them.
A recent regulatory change, however, may help investors see short selling in a very different light. The amendment to National Instrument 81-102 Investments Funds (NI 81-102), which is expected to take effect on January 3rd, 2019, will pave the way for alternative funds to use leverage and increase the use of shorting as a means of improving the quality of portfolio returns.
"For us, short selling a security is not necessarily about seeing that security go to zero — in fact, that is quite a rare occurrence. Nor are we in a business of engaging in a campaign to drive a company's share price to zero," Michael White said. “Rather, it is a tool, which when used effectively, can greatly reduce the volatility of a long-only portfolio. Using a tool like short selling has a portfolio outcome, as opposed to what most people see as a portfolio manager trying to hit a home run in driving a company's share price to zero."
The amendments to NI 81-102 will effectively help democratize alternative investment strategies, by introducing strategies such as long/short equity, market neutral, diversified strategies, and many more to retail investors.
"This new fund framework allows enhanced tools such as leverage and expanded use of shorting to not only garner new exposures but also manage risks," White said.
To keep advisors up to date with these newly available strategies, Wealth Professional, in partnership with Picton Mahoney Asset Management, will be hosting an exclusive webinar about alternative investment strategies on 27 November. Advisors who attend the webinar will earn CE credits and PDUs:
- 1.25 CE credits IIROC
- 1.5 CE credits Advocis
- 1 PDU IQPF
- 1 PDF Chambre de la securité
Register for the upcoming webinar by clicking this link
