The Greenwich Ivy Long-Short Fund (the “Fund”) invests on both the long and short sides of the global equity market. As such, the Fund can take advantage of price declines in the market by shorting individual equity securities and equity ETFs.
We hedge the Fund’s portfolio with the aim of:
1. Capturing stock-specific short alpha
2. Mitigating systematic downside risks
At Greenwich Ivy Capital (“Greenwich Ivy ™”), we firmly believe that a long-short strategy should be a core part of every investment portfolio – particularly given the elevated risk factors in the market today.
DYNAMIC HEDGING PROCESS
Based on market conditions, we aim to adjust the Fund’s hedges to reflect prevailing fundamental, macroeconomic, and geopolitical risk factors.
We seek to employ a dynamic hedging process, whereby during periods of elevated risk we may move the portfolio to net-neutral positioning, and potentially even go net-short if appropriate.
LONG-SHORT THROUGH A FUNDAMENTAL LENS
Through our fundamental analytical process, we aim to identify attractive long and short opportunities that may meet the following characteristics:
On the long side, we may favor companies with strong business models, durable cash flows, and supportive valuation.
We may also invest in companies that may be temporarily out of favor or may be trading at overly depressed valuation levels.
On the short side, we may seek companies with inferior business models, structural headwinds, and overextended valuation.
The short exposure of the portfolio may vary considerably over time to reflect prevailing market risk factors.
ELEVATED MARKET RISK FACTORS
At Greenwich Ivy, we believe that the equity market faces several major risk factors today.
Firstly, we think that the United States, and the world in general, are at the very peak of a debt cycle, fueled by rampant fiscal and monetary expansion. Money printing at the U.S. Federal Reserve has been profligate. The fiscal impulse provided by governments around the world in response to the Covid pandemic has also been excessive.
It is likely that the global financial markets need to go through a process of “normalization” where the monetary and fiscal excesses of previous years are reversed, and whereby the balance sheets of central governments and central banks can return to more tenable levels. We believe that this process of returning to sustainable levels will take about a decade, during which time we expect that systematic returns in the equity market will be muted.
Secondly, geopolitical risks are currently significant, and we would argue that the probability of some major military confrontation at the global scale is now highest since Operation Desert Storm. Russia’s invasion of Ukraine and China’s potential annexation of Taiwan could prove to be global flashpoints.
A synchronized geopolitical event of high severity would be detrimental to the equity markets, due to its negative impact on global trade and production.
Thirdly, we believe that there is still a great deal of complacency in the equity markets today. Most investors practicing today have not seen a significant down year in equity indices. Indeed the S&P 500 has not had a material negative year since 2008.
This mostly uninterrupted bull-run has left market participants, particularly algorithmic investors, unprepared for a downturn in equity prices.