Two good reasons to consider going short in Aussie equities

The Australian market is uniquely concentrated. The top end of the index is dominated by a few big companies, and that’s supported by a long tail of small positions. This presents a difficult opportunity for an investor to express a negative view on one of those small companies, but also makes betting against the bigger companies a risk.

Paradice Investment Management has traditionally been known as a long-only manager, but David Moberley seeks to combat this concentration by adding short selling to the toolbox. He reveals two good reasons to consider going short in Aussie equities:

1. Expressing a negative view can create a meaningful difference between the portfolio and the index. If a stock or sector only makes up 0.25% of the index, reducing a position to zero makes little difference on a relative basis.
   
2. Many Aussie large cap funds look very similar due to the way the index is composed. A long/short fund is able to depart further from the index, allowing investors to achieve genuine diversification at a portfolio construction level.
   

In this video, David shares his ‘four bucket’ strategy to identifying a company to short, and details the pros and cons of this investment approach. 

Take advantage of market dislocations

The Paradice Long Short Australian Equities fund provides investors with a style-neutral, long/short, active extension exposure to Australian equities.

For more investing insights from David Moberley, please follow him here.