Can someone explain why equity market neutral hedge fund strategy a relative value strategy? Since we are getting rid of market’s ups and downs and concentrating on stock picking skill, i thought this should be an absolute return strategy, as our outcome will not depend on a benchmark, no?
CFA text confuses me, 1 sentence on reading 30 says it’s absolute, the other says relative. Please see below:
Text 1: Market-neutral long–short hedge funds consider themselves to be absolute return vehicles , in that their performance should not be linked to that of the stock market
Text 2: Because relative value strategies (e.g., equity market neutral) are sensitive to different return factors from those to which hedged equity strategies and the S&P 500 are sensitive, they are expected to have low correlations with the S&P 500 and may be considered as more effective risk diversifiers.
Thanks
Kind regards,