Breaking the long-only barrier

loosening the constraints Investment managers face many different constraints, usually in the form of investment guidelines. Some constraints are necessary and desirable, like having a risk budget for an investment mandate. Others are less desirable such as those imposed by the markets themselves. Perhaps the most restrictive of these various constraints is the no shorting rule, as it dramatically reduces a fund managers opportunity set for investment. It is likely that investors can realise a potentially large alpha benefit by relaxing the long-only constraint, i.e. no shorting in an equity portfolio. This benefit arises from the market-cap weightings of standard equity benchmarks and the long-only portfolio manager’s inability to profit from negative views on companies with low index weights.