Greenwich Ivy Capital LLC

Investment Insights from Greenwich Ivy Capital

Greenwich Ivy Capital
Market Notes

27 Sep 2022

The Perfect Time for Long-Short Equity:
Threading the Equity Market Needle

In this note, we examine the recent trends in equity and bond prices. We observe that for the first time essentially since the Great Financial Crisis of 2008-09, U.S. Treasury paper across the entire duration spectrum has real yields that are substantially positive.

This means that now fixed income is potentially a viable asset class with meaningful yields – whereas for all of the previous decade, equities were the only game in town for investors seeking high real returns.

In addition, equities face a plethora of risks, including a potential imminent recession, geopolitical uncertainty, and valuation levels that are still elevated.

However, even in an environment of heightened equity risks, and despite a viable competing asset class in fixed income, we argue that equities remain the most reliable vehicle for long-term capital appreciation.

In particular, we believe that long-short equity investing potentially offers the best of both worlds:

(A) equity-like returns that are even now superior to the returns that can be expected from fixed income instruments, and

(B) downside mitigation in a world where bonds have not been defensive, and where both equity and bond prices could experience further significant declines.

Finally, we note that not all long-short equity funds are created equal. We believe that investors should seek funds that are fundamental, in that they examine the fundamentals of individual companies and sectors, and opportunistic, in that they can rapidly respond to changing market conditions...

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