WTLS attempts to capture equity upside while hedging downside through a systematic long/short approach. The fund maintains net long exposure but uses short positions to potentially profit from overvalued stocks and reduce portfolio volatility.
How It Works
The fund employs a quantitative model to identify both attractive longs and vulnerable shorts across U.S. equities. It typically runs 130% long and 30% short, creating 100% net exposure with lower expected volatility than pure long strategies. The systematic approach rebalances monthly based on valuation, momentum, and quality factors.
Key Features
- Maintains consistent 130/30 exposure unlike market-neutral funds that target zero beta
- Systematic factor-based selection removes emotion from shorting decisions
- Lower volatility than long-only equity with similar upside participation goals
Risks
- Short positions can lose money indefinitely if wrong stocks keep rising - losses aren't capped like with puts
- In strong bull markets, the 30% short book becomes pure drag on returns
- Quantitative models can fail spectacularly when correlations break - see quant crisis of 2007
Who Should Own This
Best for investors who want equity exposure but expect choppy markets ahead. Works well for those uncomfortable with current valuations but unwilling to go to cash. Consider 10-20% of equity allocation as a volatility dampener, not a core holding.