Discuss equity-related hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio

Long/short equity managers buy stocks they favour and short those they do not, keeping a net long exposure that varies over time; returns come from stock selection plus some market beta, and these funds tend to have smaller drawdowns than equities. Dedicated short-biased managers are net short, so returns are negatively correlated with equities: a useful diversifier, but costly in rising markets because of borrowing costs and the upward drift of shares. Equity market neutral managers balance longs and shorts to hold beta, and often sector exposure, near zero, using pairs trading or statistical models with leverage to magnify small spreads, so their returns are low-volatility and bond-like. Exposure is read two ways, net for the market bet and gross for the leverage: net = long − short and gross = long + short. The trap is equating low net exposure with low risk.