What opportunity are the majority of UK equity fund managers missing?Contributors Tom Bradley-Flanagan, Callum Abbot
Shorting: Not only can this be a source of alpha, but it can help manage risk in a portfolio.
Generating alpha when stock prices fall
Roughly 98%* of UK equity fund managers are not participating in an opportunity to make meaningful returns on many stocks that underperform the benchmark. Why? They are not able to short. Long-only managers are limited in their ability to generate alpha from stocks that underperform the benchmark. Especially in the UK market, where only 20 stocks have an index weight over 1%, as shown in figure 1.
FIGURE 1: DISTRIBUTION OF INDEX WEIGHTS IN THE FTSE ALL-SHARE
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