Did you know 60% of actively managed equity funds rely on long-only strategies? Long-only equity keeps investment simple, transparent, and growth-focused. But is ‘buy and hold’ still the best move in 2025?
Long-only equity strategies remain a core approach for institutional and individual investors alike in global investment markets.
According to data from Statista, global equity assets under management reached approximately US$41 trillion in 2024, with a significant portion invested via long-only strategies. These strategies focus exclusively on purchasing securities with the expectation of long-term appreciation, without engaging in short-selling.
The method is commonly adopted by traditional asset management firms as well as certain hedge funds. A report by BlackRock indicates that nearly 60% of actively managed equity funds globally follow a long-only investment model. This strategy appeals to investors seeking simplicity, transparency, and long-term growth potential, especially during bull markets.
However, it also exposes investors to market downturns without the downside hedging provided by short positions.
Understanding long-only equity
A long-only equity strategy involves purchasing stocks or other securities with the expectation that their prices will increase over time. Investors do not engage in short-selling (where securities are borrowed and sold with the aim of repurchasing at a lower price). Simply put, in a long-only strategy, investments are made solely in anticipation of future appreciation.
While often associated with traditional asset management firms, long-only strategies are also employed by some hedge funds. These funds focus exclusively on long positions in equities, aiming to achieve consistent returns through careful selection of securities.
How long-only equity strategies work
In practice, long-only investing focuses on identifying undervalued companies with growth potential or strong fundamentals. Investors analyse financial reports, industry trends, and broader economic factors to select stocks expected to perform well over time.
Unlike long-short strategies, which aim to profit from both rising and falling stock prices by holding long and short positions simultaneously, long-only strategies rely solely on upward price movement. Funds may hold positions for extended periods—often several years, depending on the investment objective.
Funds using long-only strategies can vary in scope:
- Broad mandate funds may invest globally across sectors.
- Specialised funds might focus on specific regions or industries, such as emerging markets or healthcare.
Read article: Long-Only Equity: Strategy, Benefits, and Risks Explained
Long-only hedge funds vs. asset management firms
While the long-only approach is common among asset management firms, some hedge funds also adopt this model. The distinction lies mainly in structure and investment flexibility:
- Hedge funds: Typically charge higher fees, employ concentrated portfolios, and may use derivatives for risk management while remaining long-only in terms of core positions.
- Asset management firms: Often manage larger, more diversified portfolios with a focus on long-term growth, adhering strictly to long-only positions without derivative-based hedging.
Asset managers may acquire substantial stakes in companies and hold them over years, whereas long-only hedge funds might take more active roles in company governance or adopt control-based strategies.
Key benefits of long-only equity investing
1. Simplicity and transparency
Long-only investing is straightforward. Investors buy shares and aim to profit as the value of those shares rises. This approach offers clear reporting and portfolio visibility for investors.
2. Long-term growth focus
By avoiding short positions, long-only strategies often support long-term investment objectives. Managers focus on company fundamentals rather than short-term price fluctuations.
3. Reduced complexity
Compared to long-short funds, long-only strategies avoid complex hedging techniques and short-selling risks. This makes the strategy more accessible to institutional and retail investors alike.
4. Liquidity
Equities held in long-only portfolios can generally be sold quickly if required. The absence of short positions also simplifies the process of unwinding investments.
5. Suitable for many sectors
Certain strategies, such as investing in distressed debt or specific structured products, are inherently long-only due to market structure or limited short-selling opportunities.
Risks associated with long-only equity strategies
Despite its benefits, long-only investing is not without risks:
- Market Dependency: Returns depend entirely on rising markets or individual stock performance. In market downturns, portfolios can experience significant declines.
- Lack of Downside Protection: Without short positions, long-only portfolios cannot profit from falling prices. Derivative-based hedging may help mitigate risks but adds complexity.
- Volatility Exposure: Portfolios remain exposed to market volatility. While diversification can reduce individual company risk, systemic risks affect most equities simultaneously.
- Underperformance in Bear Markets: Long-only strategies generally underperform during prolonged market downturns due to the absence of strategies to capitalise on falling prices.
Long-only equity vs. long-short equity
Long-short equity strategies combine both long and short positions. This allows investors to profit from both rising and falling stocks, potentially reducing net market exposure. Strategies like 130/30, where 130% of assets under management are invested in long positions and 30% in short positions, illustrate this approach.
While long-short strategies offer flexibility and potential for returns in varying market conditions, they are more complex, often require active trading, and depend heavily on timing and identifying both underpriced and overpriced securities.
In contrast, long-only strategies focus solely on growth from selected equities, typically involving less frequent trading and longer holding periods.
Long-only hedge funds: Characteristics and considerations
Some hedge funds adopt long-only strategies, often described as:
- Long-Only Hedge Funds: Focus exclusively on long positions, sometimes using derivatives to manage risk.
- Long Bias Funds: Primarily hold long positions but maintain minor short positions for risk hedging.
Compared to traditional hedge funds, long-only hedge funds often:
- Maintain higher liquidity due to equity-only holdings.
- Have higher portfolio concentration in selected firms.
- Use fundamental analysis extensively.
- Offer more predictable performance during market upswings, but may underperform in downturns.
Long-only strategy in asset management
Asset management firms employing long-only strategies typically:
- Focus on large, diversified portfolios.
- Acquire substantial company stakes.
- Plan for holding periods of three to five years or more.
- Emphasise financial fundamentals and traditional metrics, such as return on assets and long-term profitability.
Due to larger holdings, selling large positions may take longer, particularly during market volatility.
Compensation and work environment differences
In investment careers:
- Hedge funds (including long-only funds) tend to offer higher compensation due to performance-based fee structures, albeit often with longer hours and higher stress.
- Asset management firms typically provide lower compensation but with more stable workloads and structured career paths.
Entry-level analysts at long-only asset management firms often focus on long-term investment research, while hedge fund analysts may engage in more dynamic, catalyst-driven strategies.
Final thoughts
A long-only equity strategy represents a foundational approach to investing, concentrating solely on purchasing securities expected to appreciate. Favoured by both traditional asset managers and certain hedge funds, it offers simplicity, transparency, and alignment with long-term growth objectives.
However, it exposes investors to market downturns without the downside protection offered by short positions. Understanding the benefits and limitations of long-only investing is essential for investors evaluating this approach as part of their broader portfolio strategy.
As investment environments evolve, long-only equity remains a core strategy, suitable for those focused on long-term capital appreciation and able to weather periods of market volatility.
Himani Verma is a seasoned content writer and SEO expert, with experience in digital media. She has held various senior writing positions at enterprises like CloudTDMS (Synthetic Data Factory), Barrownz Group, and ATZA. Himani has also been Editorial Writer at Hindustan Time, a leading Indian English language news platform. She excels in content creation, proofreading, and editing, ensuring that every piece is polished and impactful. Her expertise in crafting SEO-friendly content for multiple verticals of businesses, including technology, healthcare, finance, sports, innovation, and more.
