Reading 23, Equity Portfolio Management, on page 206 + talks about long-short equity market neutral strategies. I get it that if I go long a security and short a related security that I have eliminated Beta (the systematic risk on both sides cancels out) and then just receive whatever alpha may come about as between the returns on the two positions. What I don’t get is that this position gets “equitized” by the use of the purchase of a equity futures or forward to “equitize” the cash position I now have from the short. This would seem as if I am doubling up on my long position (the original long stock plus the purchase of the forward). If I want exposure to the market, why not just buy the forward and forget about layering it on top of a “neutral” risk positing in the long-short play. Seems like a lot of trouble.
I think it’s so your opportunity set of generating returns is expanded. For example, you invest in a fund with a mandate of generating alpha from a long short strategy restricted to stocks in the S&P, this means your beta to S&P would be zero but hopefully you’ll earn a positive alpha. At the same time, you think the canadian index might go up in the near future, so you add a beta exposure to the TSX index using futures. In the end, you get your alpha from active long short strategy on the S&P plus a beta exposure on the TSX.