In the ever-evolving landscape of investment opportunities, savvy investors are constantly seeking ways to diversify their portfolios and optimize returns. Two types of alternate investment fund have emerged as compelling options for those looking beyond traditional investment avenues.
Among the various types of AIFs, long-only AIFs and long-short AIFs stand out as popular choices for different reasons. In this blog, we’ll explore the key features, benefits, and reasons why investors might choose these two types of AIFs.
Understanding AIFs: A brief overview:
Alternative Investment Funds (AIFs) are collective investment schemes that pool money from multiple investors to invest in diverse asset classes. AIFs offer opportunities beyond stocks, bonds, and cash, including real estate, private equity, venture capital, hedge funds, and more.
They are regulated by market authorities, providing transparency, and offer various risk-return profiles, catering to different investor preferences.
What are ‘long-only AIF’s?
Long-only AIFs are investment funds that predominantly adopt a “long” investment strategy. It means they only buy securities with the expectation that their value will increase over time.
These funds do not indulge in short-selling, a practice where investors bet on declining prices of certain assets. Long-only AIFs primarily aim for capital appreciation through carefully selected assets with long-term growth potential.
The advantages of long-only AIFs:
- Simplicity and lower risk: Long-only AIFs follow a straightforward investment approach, making them suitable for conservative investors. By avoiding short-selling, these funds can mitigate certain risks associated with market volatility and potential unlimited losses.
- Alignment of interests: Since long-only AIF managers solely aim for capital appreciation, their interests are aligned with those of the investors. This can foster transparency and confidence, as managers are not incentivized to take on unnecessary risks for speculative gains.
You can also check for the AIF performance of such funds for better clarity. You may also ask our experts in this case.
- Tax efficiency: Long-term capital gains typically enjoy more favourable tax treatment in many jurisdictions. By holding on to assets for the long term, long-only AIFs can reduce the tax burden on investors, enhancing overall returns.
- Steady growth potential: Long-only AIFs are well-suited for patient investors seeking steady, sustainable growth. These funds often invest in well-established companies with solid fundamentals and growth prospects, promoting a stable performance over time.
What are ‘long-short AIF’s?
Long-short AIFs are investment funds that follow a dual strategy. This involves both “long” positions (buying assets expected to rise in value) and “short” positions (selling borrowed assets with the anticipation that their value will decline). This approach allows managers to profit from both rising and falling markets, providing potential returns regardless of market direction.
Advantages of long-short AIFs:
- Flexibility & adaptability: Long-short alternate investment fund managers have the freedom to adjust their investment strategy based on changing market conditions. In uncertain or volatile market environments, the ability to adopt short positions can offer a tactical advantage.
- Enhanced diversification: Long-short AIFs can provide diversification benefits to a portfolio, as they are less dependent on overall market trends. The ability to profit from declining markets can act as a hedge during downturns, potentially offsetting losses incurred in traditional long-only investments.
- Potential for absolute returns: Unlike traditional long-only funds that aim to outperform a benchmark index, long-short AIFs target absolute returns. This approach allows managers to focus on generating positive returns regardless of overall market performance.
- Risk management: By actively managing both long and short positions, long-short AIFs can implement risk management strategies effectively. During bear markets or economic downturns, short positions can provide a cushion against potential losses, mitigating portfolio risk.
Choosing the right AIF – Factors to consider:
When considering whether to invest in a long-only AIF or a long-short AIF, investors should evaluate their risk appetite, investment goals, and time horizon. Long-only AIFs suit conservative investors seeking steady growth and simplicity. Long-short AIFs cater to those comfortable with more sophisticated strategies and a higher tolerance for risk.
For your convenience, we are going to present two tables of best AIF performance regarding long-only and long-short class. The table data is based on the last 1 Year of performance.
The Recognition for The 3 Best Performing Long Only AIF in July’23
|AMC & Scheme Name||Overall Performance (%)|
|Abakkus Emerging Opportunities Fund||Jun-19||38.2%|
|Abakkus Growth Fund 1||Jul-18||32.6%|
|Abakkus Growth Fund 2||Nov-21||30.4%|
The Recognition for The 2 Best Performing Long Short AIF in July’23
|AMC & Scheme Name||Overall Performance (%)|
|Avendus Enhanced Return Fund-II||Nov-18||33.50%|
|Alta Cura Absolute Return||Oct-21||18.08%|
|ICICI Prudential Long Short Fund – Series I||Aug-18||8.5%|
AIFs offer a versatile array of investment opportunities beyond traditional assets, making them an attractive option for modern investors. Long-only AIFs and long-short AIFs, each with its unique benefits, provide investors with avenues to achieve their financial objectives.
Therefore, by diversifying with these alternate investment fund, investors can build well-rounded portfolios that can weather various market conditions and unlock the potential for greater returns.
Remember, before making any investment decisions, it’s crucial to seek advice from a qualified financial advisor. They can tailor recommendations to individual circumstances and goals. So, if you need any kind of investment-related advice, call AIF & PMS Experts at 8368586435. You can email us through [email protected].