Timing the Turn
Think like a hedge fund with a short-equity position
At the bottom of every bear market, there is a moment when equities turn, but most long-only managers are too risk-averse to believe it. Our approach does not try to anticipate this, but there are techniques we can use to spot the opportunity sooner. The trick is to think like a hedge fund manager with a short position in equities. In every bear market since 2000, the window for a risk-efficient short position in equities has opened weeks or months after our long-only models have got to an underweight position. This window also closes well before our long-only model rebuilds its position in equities. At the bottom of the cycle, the marginal buyer is the person with a short position.