Thursday, August 10th, 2006
Small caps and shorts do go
Driehaus Capital Management’s Jeffrey James in this paper argues that more hedge funds should combine small-caps with short positions.
As of August 2003, less than 2% of the active hedge funds tracked by HedgeFund.net were categorised as small/micro cap funds. It is precisely this part of the market that, in our opinion, offers the structural inefficiencies that create the potential for significantly greater price appreciation and that, therefore, constitutes an optimal area for hedge fund investing.
By mixing long positions in primarily small cap stocks with short positions in stocks of all capitalisations, one can benefit from pricing inefficiencies on the longs while minimising overall market risk through effective short selling. As a result, the downside risk of investing in small cap stocks can be effectively managed and further reduced.
Word Count: 127. This entry was posted on Thursday, August 10th, 2006 at 6:46 pm and is filed under Richard Driehaus. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
